SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   ----------

                                    Form 10-K

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

For the Fiscal year ended May 31, 1997

                                       OR

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

For the transition period of _________________to ______________

                                          Commission file number:0-18700

                              PRIME CELLULAR, INC.
             (exact name of Registrant as specified in its charter)

            Delaware                                             13-3570672
   (State or other jurisdiction of                            (IRS Employer
   incorporation or organization)                            Identification No.)

 100 First Stamford Pl., Stamford, CT         06902
(Address of Principal Executive Office)     (Zip Code)

Registrant's telephone number, including area code (203)327-3620

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

                                            None.

Securities registered pursuant to Section 12(g) of the Act

                  Common Stock, $.01 par value

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]

On August 29, 1997, the aggregate  market value of the shares of voting stock of
the Registrant held by non-affiliates was approximately  $2,597,081.81  based on
the average of the bid and ask prices as reported by the OTC  Bulletin  Board of
$0.4375.

As of August 29, 1997,  5,936,187 shares of the  Registrant's  common stock were
outstanding.

Documents  incorporated  by  reference:  Certain  portions  of the  Registrant's
definitive Proxy Statement  relating to the Registrant's  1996 Annual Meeting of
Stockholders,  to be filed pursuant to Regulation 14A of the Securities Exchange
Act of 1934 with the Securities and Exchange  Commission,  are  incorporated  by
reference into Part III of this Report.


                                       -2-


<PAGE>




                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

PART I                                                                                           PAGE
------                                                                                           ----

<S>                                                                                               <C>
Item 1   Business .........................................................................     

Item 2   Properties .......................................................................     

Item 3   Legal Proceedings ................................................................     

Item 4   Submission of Matters to a Vote of Stockholders...................................     

PART II
-------

Item 5   Market for Registrant's Common Stock and
                Related Stockholder Matters ...............................................     

Item 6   Selected Financial Data ..........................................................     

Item 7   Management's Discussion and Analysis of Financial
                Condition and Results of Operations .......................................     

Item 8   Financial Statements and Supplementary Data ......................................     

Item 9   Changes in and Disagreements with Accountants
                on Accounting and Financial Disclosure ....................................     

PART III
--------

Item 10   Directors and Executive Officers of the Registrant...............................     

Item 11   Executive Compensation ..........................................................     

Item 12   Security Ownership of Certain Beneficial Owners and Management...................     

Item 13   Certain Relationships and Related Transactions...................................     

PART IV
-------

Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K .................      

Exhibit Index ............................................................................      

Signatures ...............................................................................      

Index to Consolidated Financial Statements ...............................................      F-1
</TABLE>

                                       -3-




<PAGE>


Item 1.  BUSINESS

     Prime  Cellular,   Inc.   ("Prime"  and,  together  with  its  wholly-owned
subsidiaries,  herein referred to as "the Company") was organized in May 1990 to
provide   management   services,   including   business   planning,   marketing,
engineering,  design and construction consulting services, to rural service area
("RSA")  cellular  telephone  licensees.  Preferences of owners of  construction
permits and the deterioration in general economic  conditions  subsequent to the
Company's  initial public offering in early August 1990 negatively  impacted the
Company's  business plan and the Company soon determined that it was prudent for
it to explore other uses for the Company's funds.

     The Company  initially  analyzed  potential  investments in debt and equity
instruments  of entities  involved in either the cellular or related  industries
and  subsequently   expanded  its  search  to  include   entities   involved  in
non-cellular  operations.  Since  1991,  the  Company  has  retained  an outside
consultant, who is also a shareholder, under an agreement renewable each July to
assist it in finding new business  opportunities  for the Company.  Fees paid to
this consultant included in general and administrative costs totaled $70,000 for
the year ended May 31, 1997. The consultant was elected President of the Company
in June 1994 and serves as a board member as well.

     On June 11, 1996 (the  "Closing"),  the Company's  wholly-owned  subsidiary
Prime Cellular Acquisition Corp. (the "Subsidiary"), consummated the merger with
Bern Associates,  Inc. ("Bern") pursuant to that certain Merger Agreement, dated
May 14, 1996 (the "Merger Agreement"),  by and among Prime, Subsidiary, Bern and
all of the stockholders of Bern (the "Bern Stockholders").  Bern was merged with
and into the  Subsidiary  (the  "Merger") and all of the  outstanding  shares of
common  stock of Bern were  converted  into an  aggregate  of  4,100,000  shares
(subsequently reduced by Amendment to 1,586,187 shares) of the Common Stock, par
value $.01 per share, of Prime,  representing  approximately 48.5% (subsequently
reduced by amendment  to 26.7%) after  consummation  of the  transaction  of the
outstanding  Common Stock of Prime (the "Merger Shares").  Following the Merger,
the  Subsidiary  changed  its  name  to  "Bern   Communications,   Inc."  ("Bern
Communications").  This  transaction was accounted for as a reverse  acquisition
whereby Bern  Communications is the acquirer for financial  reporting  purposes.
Bern Communications was the sole operating entity of the Company.

     Bern   Communications'   business   consisted   principally  of  designing,
installing,  maintaining,  servicing and supporting  computer  systems to enable
regional telephone  companies to provide Internet access to their subscribers as
well as developing Internet software.  Bern Communications offered its customers
an integrated  Internet  access  solution  comprised of  off-the-shelf  computer
hardware and accessories,  systems integration, billing software and twenty-four
hour subscriber  support.  Bern  Communications also provided network management
services to regional telephone companies already offering Internet access.



                                       -4-


<PAGE>


     After the Merger,  the Company and certain Bern Stockholders (the "Amending
Bern  Stockholders"),  holding  approximately 80% of the Merger Shares,  entered
into an  amendment  to the  Merger  Agreement,  dated as of June 11,  1996  (the
"Amendment"),  which Amendment provided for a reduction by seventy-five  percent
(75%) of the  aggregate  number of Merger  Shares  issued to the  Amending  Bern
Stockholders  in the Merger.  The Company  released and discharged such Amending
Bern  Stockholders  from any damages or losses incurred by the Company resulting
from any breach of the  representations  and warranties of the Bern Stockholders
under the Merger Agreement.

     The Merger Shares received from the Amending Bern Stockholders,  consisting
of an aggregate of 3,075,000  shares,  are held by the Company as authorized but
unissued  common  stock.   The  Company  has  pursued  its  claims  against  the
individuals  owning  approximately  20%  of  the  Merger  Shares  issued  in the
acquisition (and currently held in escrow) who have not executed the Amendment.

     Under the Amendment,  four Amending Bern Stockholders and employees of Bern
Communications  (the  "Employee   Stockholders")  also  agreed  to  amend  their
employment  agreements to reduce their  compensation  to $95,000 per year and to
extend  the terms of their  agreements  to three  years from June 11,  1996.  In
addition,  each of these Employee Stockholders was granted three-year options to
purchase  256,250  shares of the Common  Stock of Prime at an exercise  price of
$8.00 per share.

     On  August  28,  1997,   the  Company   entered  into  a  settlement   (the
"Settlement")  with the  Amending  Bern  Stockholders  with  respect to disputes
concerning the operations and direction of the business of Bern  Communications.
In connection with the Settlement,  the Company  purchased  substantially all of
the Merger Shares held by the Amending Bern Stockholders, at a purchase price of
$.50 per share (which in the  aggregate  amounted to 676,937  shares for a total
amount of  $338,469),  transferred  to the Employee  Stockholders  all right and
title to the intellectual  property rights with respect to the computer software
program WEBSITENOW and certain computer hardware used in the development of such
software program, and terminated the employment agreements and option agreements
with  the  Employee  Stockholders.  Both  the  Company  and  the  Amending  Bern
Stockholders executed a mutual release as well.

     As a  result  of the  Settlement,  Bern  Communications  ceased  soliciting
further  opportunities  or  engaging  in  any  further  consulting  services  in
connection with its integrated Internet service business. Moreover, all sales of
computer  hardware  and/or  software of Bern  Communications  were  discontinued
effective as of the Settlement.  Bern Communications will nevertheless  continue
to provide help desk functions as well as to provide network management services
pursuant to its existing contractual arrangements.

                                       -5-


<PAGE>


CUSTOMERS

     Bern  Communications  focused  its  initial  marketing  efforts on regional
telephone  companies.  To  those  companies  that did not yet  offer a  Internet
solution  to their  subscribers,  Bern  Communications  offered  its  design and
installation  services.  To those  regional  telephone  companies  which already
provided  Internet  access  or  who  were  just  entering  that  business,  Bern
Communications offered its network management and help desk services.

     As of the  Settlement,  Bern  Communications  will continue only to provide
help desk service for the benefit of its existing  telephone  companies pursuant
to  contracts  entered into with these  customers as well as to provide  network
management  services  to  one  customer  pursuant  to  an  existing  contractual
arrangement.

     Currently Bern  Communications  has two contracts to provide  Internet help
desk services and one contract to provide network  management  services.  Two of
these contracts are with Century Supply Group, Inc.  ("Century").  Approximately
88% of Bern  Communications'  revenues  for the year  ended  May 31,  1997  were
attributable to Century.

MARKETING AND DISTRIBUTION

     Prior to the Settlement,  Bern Communications focused on providing Internet
service business to regional telephone  companies,  providing regional telephone
companies  with total  solutions to Internet  access as well as state of the art
network management and help desk services. Bern Communications marketed and sold
its products and services through its employees during the 1997 fiscal year.

     On or about July 18, 1997, the Company  determined to stop funding  ongoing
operations  of Bern  Communications.  In  connection  with this  decision,  Bern
Communications discontinued all sales of computer hardware and/or software. Bern
Communications  will continue to provide help desk  functions as well as network
management  services for its existing  customer  base through the  expiration or
earlier termination of its current contractual  arrangements with such telephone
companies.

SUPPLIER

     Bern Communications had no key suppliers; its design solutions for Internet
access   utilized   off-the-shelf   hardware   and  software  as  well  as  Bern
Communication's billing software.


                                       -6-


<PAGE>


EMPLOYEES

     Prime has one employee at August 31,  1997.  Bern  Communications  employed
three (3) employees  full-time and one (1) part-time,  of which 3 were employees
of the help desk.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The executive officers of the Company are: (i) Joseph K. Pagano,  President
and Chairman of the Board and (ii) Robert A. Reinhart,  Chief Financial Officer,
Vice-President, Treasurer and Secretary.

     Mr. Pagano is 51 years old and has been President of the Company since June
1995.  He also  served as Chief  Financial  Officer  from  June  1994  until Mr.
Reinhart's  engagement.  Prior  thereto,  Mr. Pagano was, and continues to be, a
consultant to the Company.  Mr. Pagano has been a private investor for more than
the last 5 years.

     Robert A. Reinhart is 47 years old, is a certified  public  accountant  and
has  served  as  the  Chief   Financial   Officer   since  July  1996,   and  as
Vice-President,  Treasurer and Secretary since May 1997. Prior to his employment
by the Company,  Mr. Reinhart  served as the Chief  Operating  Officer and Chief
Financial Officer of DeBoles Nutritional Foods, Inc. ("DeBoles"). Prior to being
engaged  by  DeBoles  in 1992,  Mr.  Reinhart  was a  senior  manager/engagement
executive with a certified  public  accounting firm located in Long Island,  New
York.


                                       -7-



<PAGE>


     At August 31, 1997, the officers of Bern  Communications  consist of Joseph
K. Pagano,  President and Robert A. Reinhart,  Vice-President,  Chief  Financial
Officer,  Treasurer and Secretary. Prior to Mr. Pagano serving as President, Mr.
Reinhart served as President of Bern  Communications  from March 1997.  Prior to
March 1997, Rafael Collado, an Employee Stockholder, served as President.


Item 2.  PROPERTIES

     The Company's  executive  offices are located at 100 First Stamford  Place,
Third Floor,  Stamford, CT 06902. The Bern Communications help desk is currently
located in Teaneck,  New Jersey pursuant to a month-to-month lease in the amount
of $1,000 per month.


Item 3.  LEGAL PROCEEDINGS

     On or about  December  20,  1996,  Prime  commenced  an  action in New York
against a former  employee  of Bern  Communications  and others.  The  complaint
alleges that such former employee made false and fraudulent  representations  in
connection with the Merger and breached her obligations as an employee by, among
other  things,  various  acts of  dishonesty,  breaches  of  fiduciary  duty and
corporate  waste.  In the action,  Prime seeks an unspecified  amount of damages
from the  defendants  and Prime seeks  rescission  to recover the Merger  Shares
issued to such defendants  pursuant to the Merger. The former employee has filed
a  counterclaim  that  seeks  unspecified  amounts  for  alleged  breach  of her
employment agreement. Discovery in the action has recently commenced.

     On or about December 20, 1996, Bern  Communications  commenced an action in
New Jersey against a former employee, seeking unspecified damages. The Complaint
alleges that such former  employee  breached his  obligations  as an employee of
Bern Communications by, among other things, various acts of dishonesty, breaches
of  fiduciary  duty  and  corporate  waste.  Bern  Communications  also  seeks a
declaration that the former employee's  employment  agreement is invalid because
it was not properly authorized.  The former employee has filed a separate action
against Bern  Communications  and Prime,  which has been  consolidated with Bern
Communications'  action,  and which seeks  unspecified  amounts  pursuant to the
purported employment  agreement of the former employee.  Discovery in the action
has recently commenced.


Item 4.  SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS

                  None.

                                       -8-


<PAGE>


                                     PART II


Item 5.         MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
                STOCKHOLDER MATTERS

     The  Company's  Common Stock is traded on the OTC Bulletin  Board under the
symbol PCEL. Until August 18, 1994, the Company's Common Stock was quoted by the
NASDAQ Small-Cap Market System.  Effective August 18, 1994,  NASDAQ delisted the
Company's common stock from its NASDAQ Small-Cap Market System. As of August 31,
1997, there were 5,936,187 shares of Common Stock  outstanding held of record by
approximately 39  stockholders.  The following table sets forth, for the periods
indicated,  the high and low bid quotations  for the Company's  Common Stock for
the last two fiscal years as reported on the OTC Bulletin Board.  The quotations
reflect prices among dealers, do not reflect retail markups,  markdowns or other
fees or commissions, and do not necessarily represent actual transactions.

Year                                              High              Low
----                                              ----              ---
Fiscal 1997                           

First quarter                                     8.75              3.50   
Second quarter                                    3.75              2.25
Third quarter                                     3.75              2
Fourth quarter                                    4.75              2


Year                                              High              Low
----                                              ----              ---
Fiscal 1996

First quarter                                     2 1/2             1 5/16
Second quarter                                    2                 1 1/2
Third quarter                                     2                 1 5/8
Fourth quarter                                    8 1/2             1


     On August 29, 1997 the average of the bid and ask prices for the  Company's
Common Stock was $0.4375 as reported by the OTC Bulletin Board.

     The payment of dividends on the Common  Stock is within the  discretion  of
the Company's Board of Directors. The Company has not paid cash dividends on its
Common Stock and does not expect to declare  cash  dividends on the Common Stock
in the foreseeable future.



                                       -9-



<PAGE>



Item 6.  SELECTED FINANCIAL DATA

     The following  table sets forth certain  financial data for the years ended
May 31, 1997, 1996 and for the period  February 22, 1995  (Inception) to May 31,
1995.  This  information  should be read in  conjunction  with the  consolidated
financial statements and notes thereto included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>
                                                                                February 22, 1955
                                                   Year Ended May 31,              (Inception) 
                                                                                 to May 31, 1995
                                              ----------------------------      -----------------
                                                1997               1996               1995  
                                                                                             
<S>                                           <C>               <C>                 <C>    
Statement of Operations Data:                                                   
     Total revenues                           $1,792,948        $2,331,174          $12,000
     Net (loss)                                (474,120)         (324,000)         ( 18,542)
     Net (loss) per                                                      
     common share                                 ($.08)            ($.20)            ($.01)
     Weighted average number                                                    
     of shares outstanding                     5,892,730         1,586,187         1,586,187
Balance Sheet Data:                                                             
     Total Assets                              6,093,951           881,308            22,363
     Stockholders' Equity                      5,689,863         (310,278)           (8,538)
</TABLE>                                                                        

     The  1996 and  1995  financial  data is that of Bern  Associates,  Inc.  in
accordance with the accounting  treatment of the merger as a reverse acquisition
as discussed in Note 1 of the Financial Statements.

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


RESULTS OF OPERATIONS

     On June 11, 1996, Prime  consummated the Merger with Bern. Bern merged with
an inactive  subsidiary  of Prime  which was formed to  complete  the Merger and
simultaneously  with the consummation of the Merger,  the subsidiary changed its
name to Bern  Communications,  Inc.  ("Bern  Communications").  Under the Merger
Agreement,  all of the outstanding shares of common stock of Bern were exchanged
for 1,586,187  shares of Prime.  This transaction was accounted for as a reverse
acquisition  whereby  Bern  was  the  acquirer  for  accounting  purposes.   The
historical  financial  statements  prior to June 1, 1996 are therefore  those of
Bern.


                                      -10-


<PAGE>


     In  connection  with the Merger,  the  Company  entered  into a  Settlement
Agreement  on  August  28,  1997  with  certain  former   Shareholders  of  Bern
Associates, Inc. as a result of claims made by the Company for possible breaches
of certain  representations and warranties of the Bern stockholders with respect
to the Merger and otherwise.

     As a  result  of the  Settlement,  Bern  Communications  ceased  soliciting
further  opportunities  or  engaging  in  any  further  consulting  services  in
connection with its integrated Internet access services.  Moreover, all sales of
computer  hardware  and/or  software of Bern  Communications  were  discontinued
effective as of the  Settlement.  Bern  Communications  will continue to provide
help desk  services  as well as  network  management  services  pursuant  to its
existing contractual arrangements.

     The Company has retained an outside  Consultant  (since 1991) who is also a
shareholder,  under  an  agreement,  to  assist  it in  finding  a new  business
opportunity for the Company.

1997 vs. 1996

     Revenue  decreased  $538,226 for the year ended May 31, 1997 as compared to
the year ended May 31, 1996.  This  decrease was due to a large  equipment  sale
which  occurred  during the year ended May 31, 1996 which was not  duplicated in
the year ended May 31,  1997.  Furthermore,  the  Company did not  generate  any
equipment sales for the fourth quarter ended May 31, 1997.

     Gross profit increased $809,828 for the year ended May 31, 1997 as compared
to the year ended May 31, 1996. This increase resulted from the low gross profit
realized on the large  equipment sale made during the year ended May 31, 1996 as
compared to multiple  equipment sales, at relatively  higher margins,  generated
during  the year  ended  May 31,  1997.  For the year  ended May 31,  1996,  the
Company's  help desk and network  management  services  were still in a start-up
phase, distinguished by numerous costs and no associated revenue stream.

     Selling,  general and administrative  expenses increased $1,266,736 for the
year  ended  May 31,  1997 as  compared  to the year  ended May 31,  1996.  This
increase  resulted from Prime's  selling,  general and  administrative  costs of
$380,198  which were not  present  for the year ended May 31,  1996,  as well as
expenses of $886,538  incurred to increase  equipment  sales and revenue for the
year ended May 31,  1997.  Interest  income  increased  as a result of acquiring
significant cash and investments from Prime following the Merger in June 1996.

1996 vs 1995

     Bern  was  incorporated  on  February  22,  1995 and had  little  operating
activity for the period ended May 31, 1995.  Operations of Bern commenced during
the year  ended  May 31,  1996  when  significant  contracts  and  revenue  were
received.  Selling,  general and administrative  expenses increased $477,462 for
the year ended May 31, 1996 as compared to the inception period ended

                                      -11-



<PAGE>



May 31, 1995.  This increase was due to the increased costs incurred in order to
secure  Bern's  first  major  contracts  as well as the  costs  associated  with
servicing these customers and developing an internal organization.

LIQUIDITY AND CAPITAL RESOURCES

     At May 31,  1997  the  Company  had  approximately  $5,750,000  in cash and
investments and working capital of approximately $5,500,000.

     Net cash used by operating  activity  aggregated  $261,899 and $279,089 for
the years ended May 31, 1997 and 1996,  respectively.  The decrease in cash used
by operating activities was attributable to a large decrease in accounts payable
and an additional net loss,  offset by a large  decrease in accounts  receivable
and inventory.

     Net cash used in investing activity was $857,992 and $131,336 for the years
ended May 31, 1997 and 1996,  respectively.  This  increase was primarily due to
cash of $960,223 acquired from Prime in connection with the June 1996 merger.

     Cash flow from financing  activities  increased to $6,397,700 from $583,785
for the year ended May 31, 1997 as compared to the year ended May 31, 1996.  The
increase resulted from the Merger as well as proceeds, in the amount of $62,520,
from the sale of stock and payments, in the amount of $76,561, made with respect
to officers' loans to the Company.

     Inflation  has not  historically  had a  material  impact on the  Company's
operations.

SEASONALITY

     The operations of the Company are not considered to be seasonal.


Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The financial statements required pursuant to this Item are included herein
commencing on Page F-1.


Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURE

     On July 28, 1997,  the Company  dismissed  BDO Seidman,  LLP ("BDO") as its
principal independent accountant and engaged Marcum & Kliegman LLP ("Marcum") as
its  principal  independent  accountants  to audit and  report on the  financial
statements of the Company for the fiscal year ending May 31, 1997.  The decision
to change accountants was approved by the Company's Board of Directors.

     BDO's  reports on the  financial  statements  of the Company for the fiscal
years ended May 31, 1996 or May 31, 1995 were  unqualified  with a  modification
paragraph  addressing  the  Company's  ability to continue  as a going  concern.
During  the  fiscal  years  ended May 31,  1996 and May 31,  1995 and during the
period from June 1, 1996 through July 28, 1997, there were no disagreements with
BDO on any matter of accounting

                                      -12-



<PAGE>



principles or practices,  financial  statement  disclosure or auditing  scope or
procedure or any reportable event.

     Additional  information  with  respect to matters  set forth in Item 304 of
Regulation S-K is incorporated  herein by reference to the report dated July 25,
1997 filed on Form 8-K pursuant to Section 13 of the Securities  Exchange Act of
1934.


Item 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

     The information  contained under the heading  "Proposal No. 1 - Election of
Directors" in the Company's  definitive Proxy Statement (the "Proxy  Statement")
relating to the Company's  Annual Meeting of Stockholders to be held on or about
November 10, 1997,  to be filed  pursuant to  Regulation  14A of the  Securities
Exchange  Act  of  1934  with  the  Securities  and  Exchange   Commission,   is
incorporated  herein by  reference.  For  information  concerning  the executive
officers of the Company, see "Executive Officers of the Registrant" in Part I of
this Report.


Item 11.   EXECUTIVE COMPENSATION

     The information contained under the heading "Executive Compensation" in the
Company's Proxy Statement is incorporated herein by reference.


Item 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
           AND MANAGEMENT

     The information contained under the heading "Beneficial Ownership of Common
Stock" in the Company's Proxy Statement is incorporated herein by reference.


Item 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  contained  under the heading  "Certain  Relationships  and
Related Transactions" in the Company's Proxy Statement is incorporated herein by
reference.



                                      -13-


<PAGE>



                                     PART IV

Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
          REPORTS ON FORM 8-K

     (a)   (1) Financial Statements - See list of Financial Statements on F-1. 
           (2) Schedules - Not applicable.

     (b)   Reports on Form 8-K

     The Company  filed two reports on Forms 8-K dated each of June 11, 1996 and
July 25, 1997, which reports concerned the acquisition of Bern Associates,  Inc.
and the change of the Company's accountants, respectively.

     (c)   Exhibits

     2.1   Merger  Agreement,  dated as of May 14, 1996, by and among the
           Company,   the  Subsidiary,   Bern  Associates  and  the  Bern
           Stockholders.**

     2.2   List of Omitted Schedules/Exhibits to Merger Agreement.**

     3.1   Certificate of Incorporation of the Company*

     3.2   By-laws of the Company*

     10.1  Consulting Agreement dated July 2, 1991 among the Company, Prime 
           Cellular of Florida, Inc. and Joseph K. Pagano*

     10.2  Amendment to Consulting Agreement*

     10.3  Stock Option Plan*

     10.6  Registration Rights Agreement, dated June 10, 1996, between 
           Registrant and the Bern Stockholders.**

     10.7  Escrow Agreement, dated June 10, 1996, between Registrant and the
           Bern Stockholders.**

     10.8  Indemnification Agreement, dated June 10, 1996 between Registrant and
           the Bern Stockholders.*

     10.9  Form of Amendment to Merger Agreement, dated as of June 11, 1997.



                                      -14-


<PAGE>



     10.10  Form of Settlement Agreement, dated August 28, 1997 (with Exhibits)

     21     Subsidiaries of the Registrant

     27     Financial Data Schedule


----------
     * Previously filed with the Securities and Exchange  Commission as Exhibits
to, and  incorporated  herein by reference from, the Company's  Annual Report on
Form 10-K for the years ended May 31, 1995,  May 31, 1994, May 31, 1993, May 31,
1992 or May 31, 1991.

     ** Previously filed with the Securities and Exchange Commission as Exhibits
to, and incorporated  herein by reference from, the Company's Report on Form 8-K
dated June 11, 1996.

 
                                      -15-


<PAGE>


                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) 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.

                                         PRIME CELLULAR, INC.


September 15, 1997                       By: /s/ Joseph K. Pagano
                                             -----------------------------------
                                         Joseph K. Pagano, President



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the date
indicated.

<TABLE>
<CAPTION>

Signature                                 Title                                  Date
---------                                 -----                                  ----

<S>                           <C>                                         <C>
/s/ Joseph K. Pagano           Director, President &                       September 15, 1997
-------------------------     (principal executive officer)
Joseph K. Pagano              



/s/ Robert A. Reinhart        Chief Financial Officer, Treasure,          September 15, 1997
------------------------      Secretary and vice President (principal 
Robert A. Reinhart            financial officer)                      
                              


/s/                           Director                                    September __, 1997
------------------------
Frederick R. Adler


/s/ Samuel Rozzi              Director                                    September 15, 1997
-------------------------
Samuel Rozzi

</TABLE>

                                      -16-

<PAGE>



                      PRIME CELLULAR, INC. AND SUBSIDIARIES


                                    CONTENTS



                                                                          Page

REPORTS OF INDEPENDENT ACCOUNTANTS                                         F-2


FINANCIAL STATEMENTS

  Balance Sheets                                                           F-4
  Statements of Operations                                                 F-5
  Statements of Stockholders' Equity (Deficit)                             F-6
  Statements of Cash Flows                                                 F-7


NOTES TO FINANCIAL STATEMENTS                                              F-9

All  schedules  for  which  provision  is  made  in  the  applicable  accounting
regulation of the  Securities  and Exchange  Commission  are either not required
under the related  instructions  or are  inapplicable,  and therefore  have been
omitted.


                                       F-1


<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ---------------------------------



To the Board of Directors and Stockholders of
Prime Cellular, Inc. and Subsidiaries


We have audited the accompanying  consolidated  balance sheet of Prime Cellular,
Inc.  and  Subsidiaries  as of  May  31,  1997,  and  the  related  consolidated
statements of operations, stockholders' equity (deficit), and cash flows for the
year then  ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial  statements  based on our audit.  The  financial  statements  of Prime
Cellular,  Inc.  and  Subsidiaries  as of May 31,  1996  and  1995  include  the
historical  accounts  solely of Bern  Communications,  Inc.,  as a result of the
reverse  acquisition  which occurred on June 11, 1996 as discussed in Note 1 and
were audited by other  auditors  whose report dated August 14, 1996 expressed an
unqualified opinion on those statements with a modification paragraph addressing
the Company's ability to continue as a going concern.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Prime Cellular, Inc.
and  Subsidiaries  as of May 31,  1997 and the results of their  operations  and
their cash flows for the year then ended in conformity  with generally  accepted
accounting principles.




                                                           Marcum & Kliegman LLP
Woodbury, New York
September 5, 1997


                                       F-2


<PAGE>



               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
               --------------------------------------------------



To the Board of Directors and Stockholders of
Bern Communications, Inc.
Teaneck, New Jersey


We have audited the  accompanying  balance sheets of Bern  Communications,  Inc.
(formerly Bern Associates,  Inc.) as of May 31, 1996 and the related  statements
of operations,  stockholders' deficit, and cash flows for the year ended May 31,
1996 and the  period  February  22,  1995  (inception)  to May 31,  1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements.  An audit also includes assessing the accounting  principles used
and significant estimates made by management,  as well as evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the  financial  position of Bern  Communications,  Inc.
(formerly  Bern  Associates,  Inc.)  at May  31,  1996  and the  results  of its
operations  and its cash  flows for the year  ended May 31,  1996 and the period
February 22, 1995  (inception)  to May 31, 1995,  in conformity  with  generally
accepted accounting principles.

The financial  statements referred to above have been prepared assuming that the
Company will continue as a groing concern. The Company has suffered losses since
inception and has a net working  capital  deficit and a capital  deficit.  These
conditions raise  substantial doubt as to the Company's ability to continue as a
going  concern.  The financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.



Valhalla, New York                                              BDO Seidman, LLP
August 14, 1996



                                       F-3



<PAGE>



                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                                 BALANCE SHEETS

                              May 31, 1997 and 1996

                                     ASSETS
                                     ------
<TABLE>
<CAPTION>
                                                                 1997           1996
                                                              -----------    -----------
                                                            (Consolidated)
<S>                                                           <C>            <C>        
CURRENT ASSETS
  Cash and cash equivalents                                   $   779,216    $   184,684
  Investments                                                   4,969,512            -0-
  Accounts receivable, net of allowance
  of $3,500 and $15,000 as of May 31, 1997
  and 1996 respectively                                            44,744        294,196
  Inventory                                                           -0-        268,707
  Notes and other receivables                                     120,102         11,136
                                                              -----------    -----------

    Total Current Assets                                        5,913,574        758,723

PROPERTY & EQUIPMENT, Net                                         176,777        119,153

OTHER ASSETS                                                        3,600          3,432
                                                              -----------    -----------

    TOTAL ASSETS                                              $ 6,093,951    $   881,308
                                                              ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES
  Accounts payable and accrued expenses                       $   366,450    $   615,025
  Deferred revenue                                                 37,638            -0-
  Note payable, related party                                         -0-        500,000
  Due to officers                                                     -0-         76,561
                                                              -----------    -----------

    TOTAL LIABILITIES                                             404,088      1,191,586
                                                              -----------    -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
 Common stock, $.01 par value, 20,000,000 shares authorized,
  5,936,187 shares issued and outstanding in 1997 and 400
  shares authorized, issued and outstanding in 1996                59,362              4
 Additional paid-in capital                                     6,447,163         32,260
 Accumulated deficit                                             (816,662)      (342,542)
                                                              -----------    -----------

    TOTAL STOCKHOLERS EQUITY (DEFICIT)                          5,689,863       (310,278)
                                                              -----------    -----------

    TOTAL LIABILITIES AND STOCKHOLDERS'
    EQUITY (DEFICIT)                                          $ 6,093,951    $   881,308
                                                              ===========    ===========
</TABLE>

   The accompanying notes are an integral part of these Financial Statements.


                                       F-4


<PAGE>



                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                                         For the Period
                                       For the Year    For the Year     February 22, 1995
                                           Ended            Ended        (Inception) to
                                       May 31, 1997     May 31, 1996      May 31, 1995
                                       ------------     ------------     -------------
                                      (Consolidated)                     
<S>                                   <C>               <C>              <C>  
REVENUES                                                                 
  Equipment                           $ 1,219,529       $ 1,767,737       $       -0-
  Service                                 573,419           563,437            12,000
                                      -----------       -----------       -----------
                                                                         
    TOTAL REVENUES                      1,792,948         2,331,174            12,000
                                      -----------       -----------       -----------
                                                                         
COST OF REVENUES                                                         
  Equipment                               588,988         1,567,436               -0-
  Service                                 231,222           600,828            21,094
                                      -----------       -----------       -----------
                                                                         
    TOTAL COST OF REVENUES                820,210         2,168,264            21,094
                                      -----------       -----------       -----------
                                                                         
    GROSS PROFIT (LOSS)                   972,738           162,910            (9,094)
                                                                         
SELLING, GENERAL AND                    
 ADMINISTRATIVE EXPENSES                1,753,646           486,910             9,448     
                                      -----------       -----------       -----------
                                                                         
     OPERATING LOSS                      (780,908)         (324,000)          (18,542)
                                      -----------       -----------       -----------
                                                                         
OTHER INCOME (EXPENSE)                                                   
  Dividend and interest income            309,155               -0-               -0-
  Interest expense                         (2,367)              -0-               -0-
                                      -----------       -----------       -----------
                                                                         
    TOTAL OTHER INCOME                    306,788               -0-               -0-
                                      -----------       -----------       -----------
                                                                         
    NET LOSS                          $  (474,120)      $  (324,000)      $   (18,542)
                                      ===========       ===========       ===========
                                                                         
LOSS PER SHARE OF COMMON STOCK        $      (.08)      $      (.20)      $      (.01)
                                      ===========       ===========       ===========
                                                                         
WEIGHTED AVERAGE COMMON STOCK                                            
 OUTSTANDING                            5,892,730         1,586,187         1,586,187
                                      ===========       ===========       ===========
</TABLE>
                                                                         
                                                                         
                                                                         
   The accompanying notes are an integral part of these financial statements.


                                       F-5



<PAGE>



<TABLE>
<CAPTION>
                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                                                   $.01 Par Value
                                                    Common Stock           Additional
                                               ----------------------        Paid-In         Accumulated       Unearned       
                                               Shares          Amount        Capital           Deficit       Compensation    Total
                                               ------          ------      ----------        -----------     ------------    -----
                                                                                                                     
                                                                                                                     
BALANCE - February 22, 1995                                                                                          
<S>                                         <C>               <C>          <C>               <C>                <C>      <C>
 (Inception)                                      -0-         $   -0-      $      -0-        $     -0-          $   -0-  $     -0-
                                                                                                                     
                                                                                                                     
Issuance of stock                                 400               4          32,260                                        32,264
                                                                                                                     
                                                                                                                     
Contribution of Capital -
 stock subcription receivable                                                                                   (22,260)    (22,260)
                                                                                                                     
                                                                                                                     
Net loss for the period February 22,                                                                                 
 1995 (inception) to May 31, 1995                                                              (18,542)                     (18,542)
                                            ---------         -------      ----------        ---------          -------  ----------
                                                                                                                     
                                                                                                                     
BALANCE -  May 31, 1995                           400               4          32,260          (18,542)         (22,260)     (8,538)
                                                                                                                     
                                                                                                                     
Satisfaction of stock subscription                                                                                   
 receivable                                                                                                      22,260      22,260
                                                                                                                     
                                                                                                                     
Net loss for the year ended                                                                                          
 May 31, 1996                                                                                 (324,000)                    (324,000)
                                            ---------         -------      ----------        ---------          -------  ----------
                                                                                                                     
                                                                                                                     
BALANCE - May 31, 1996                            400               4          32,260         (342,542)             -0-    (310,278)
                                                                                                                     
Exercise of stock options                      50,000             500          74,500                                        75,000
                                                                                                                     
                                                                                                                     
Issuance of stock resulting from                                                                                     
 merger                                     1,586,187          15,862         (15,862)                                          -0-
                                                                                                                     
                                                                                                                     
Recapitalization resulting from                                                                                      
 merger                                     4,299,600          42,996       6,356,265                                     6,399,261
                                                                                                                     
                                                                                                                     
Net loss for the year ended                                                                                          
 May 31, 1997                                                                                 (474,120)                    (474,120)
                                            ---------         -------      ----------        ---------          -------  ----------


BALANCE - May 31, 1997
 (Consolidated)                             5,936,187         $59,362      $6,447,163        $(816,662)         $   -0-  $5,689,863
                                            ---------         -------      ----------        ---------          -------  ----------
</TABLE>                                                               
                                                                              
   The accompanying notes are an integral part of these financial statements. 
                                                                        

                                       F-6


<PAGE>



                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                                              For the Period
                                                                      For the Year        For the Year      February 22, 1995
                                                                         Ended               Ended           (Inception) to
                                                                      May 31, 1997        May 31, 1996         May 31, 1995
                                                                      ------------        ------------        -------------
                                                                    (Consolidated)
<S>                                                                   <C>                   <C>                   <C>      
CASH FLOWS FROM OPERATING
 ACTIVITIES
  Net loss                                                            $(474,120)            $(324,000)            $(18,542)
                                                                      ---------             ---------             --------
  Adjustments to reconcile net loss to net
   cash (used in) provided by  operating
   activities:
     Depreciation and amortization                                       33,891                12,240                  -0-
     Compensation recognized in satisfaction
      of stock subscription receivable                                      -0-                22,260                  -0-
     Reserve for doubtful accounts                                          -0-                15,000                  -0-
     Decrease (increase) in accounts
      receivable                                                        249,452              (309,196)                 -0-
     Decrease (increase) in inventory                                   268,707              (268,707)                 -0-
     (Increase) in other receivables                                   (108,966)                  -0-                  -0-
     Decrease (increase) in prepaid expenses
      and other assets                                                   12,717               (13,586)              (1,039)
     (Decrease) increase in accounts payable
      and accrued expenses                                             (281,218)              586,900               28,125
     Increase in deferred revenue                                        37,638                   -0-                  -0-
                                                                      ---------             ---------             --------

       TOTAL ADJUSTMENTS                                                212,221                44,911               27,086
                                                                      ---------             ---------             --------

       NET CASH (USED IN) PROVIDED
       BY OPERATING ACTIVITIES                                         (261,899)             (279,089)               8,544
                                                                      ---------             ---------             --------

CASH FLOWS FROM INVESTING
 ACTIVITIES
  Increase in property and equipment, net                               (91,515)             (131,336)                 -0-
  Increase in investments, net                                          (10,716)                  -0-                  -0-
  Cash acquired in connection with the
   merger                                                               960,223                   -0-                  -0-
                                                                      ---------             ---------             --------

       NET CASH PROVIDED BY (USED
        IN) INVESTING ACTIVITIES                                      $ 857,992             $(131,336)                $-0-
                                                                      ---------             ---------             --------
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       F-7


<PAGE>




                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                       STATEMENTS OF CASH FLOWS, Continued

<TABLE>
<CAPTION>
                                                                                                              For the Period
                                                                      For the Year        For the Year      February 22, 1995
                                                                         Ended               Ended           (Inception) to
                                                                      May 31, 1997        May 31, 1996         May 31, 1995
                                                                      ------------        ------------        -------------
                                                                    (Consolidated)
<S>                                                                  <C>                   <C>                  <C>      
CASH FLOWS FROM FINANCING
 ACTIVITIES
  (Decrease) increase in due to officers                             $  (76,561)            $  73,785            $   2,776
  Proceeds from sale of stock                                            75,000                   -0-                    4
  Proceeds from note payable, related party                                 -0-               500,000                  -0-
  Proceeds from stock subscriptions                                         -0-                10,000                  -0-
                                                                     ----------             ---------            ---------

       NET CASH (USED IN) PROVIDED
        BY OPERATING ACTIVITIES                                          (1,561)              583,785                2,780
                                                                     ----------             ---------            ---------

       NET INCREASE IN CASH AND
        CASH EQUIVALENTS                                                594,532               173,360               11,324

CASH AND CASH EQUIVALENTS -
 Beginning                                                              184,684                11,324                  -0-
                                                                     ----------             ---------            ---------

CASH AND CASH EQUIVALENTS -
 Ending                                                              $  779,216             $ 184,684            $  11,324
                                                                     ==========             =========            =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 Cash paid during the periods for:
   Interest                                                              $2,367                  $-0-                 $-0-

 Noncash investing and financing activities:

 Capital Stock Issued for Stock
  Subscription Receivable and unearned compensation                         -0-                   -0-            $  32,260    
 
       In  connection  with the merger on June 11, 1996,  the  following  assets
       (liabilities)  were  acquired  by the  acquiring  entity  for  accounting
       purposes:

       Cash                                                          $  960,223
       Investment in U.S. Treasury bonds                              4,958,796
       Other current assets                                             512,885
       Accounts payable and accrued expenses                            (32,643)
                                                                     ----------

                                                                     $6,399,261
                                                                     ==========
</TABLE>


   The accompanying notes are an integral part of these financial statements.


                                       F-8


<PAGE>



                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



NOTE 1 - Summary of Significant Accounting Policies


     Nature of Business

     Prime Cellular, Inc. ("Prime") was incorporated in Delaware on May 10, 1990
     to  provide  management  and  consulting  services  to rural  service  area
     cellular telephone  licensees.  Prime is no longer in the development stage
     as a result of a merger with Bern Associates, Inc.


     Business Combination

     On June 11, 1996,  Prime  consummated a merger with Bern  Associates,  Inc.
     Bern  Associates,   Inc.  merged  with  Prime  Cellular   Acquistion  Corp.
     ("Acquisition  Corp.")an  inactive  subsidiary of Prime which was formed to
     complete the merger and  simultaneously  Acquisition Corp. changed its name
     to Bern Communications,  Inc. ("Bern").  Under the merger agreement, all of
     the outstanding shares of common stock of Bern were exchanged for 1,586,187
     shares  of  Prime.   This  transaction  was  accounted  for  as  a  reverse
     acquisition  whereby  Bern was the acquirer for  accounting  purposes.  The
     historical  financial  statements  prior to June 1,  1996 are those of Bern
     Associates, Inc.

     Bern designs, installs,  maintains,  services and supports computer systems
     to enable companies to provide Internet access to their subscribers as well
     as develops Internet  software.  Bern is the sole operating entity of Prime
     Cellular, Inc. and subsidiaries (collectively the "Company").

     In  connection  with the merger,  the  Company  entered  into a  settlement
     agreement on August 28, 1997 with certain former  shareholders  as a result
     of  claims  made  by  the  Company   for   possible   breaches  of  certain
     representations  and warranties of the Bern  Associates  Inc.  stockholders
     with respect to the merger and otherwise (see Note 9).


     Proforma Operating Results (unaudited) 

     The following  are proforma  results for the year ended May 31, 1996, as if
     the  acquisition  as  described  above had  occurred on June 1, 1995.

                                                  For the Year Ended
                                                     May 31, 1996
                                                  ------------------

     TOTAL REVENUES                               $     2,690,039
     NET LOSS                                     $      (343,780)

     LOSS PER SHARE
     STOCK OUTSTANDING                            $          (.22)

     WEIGHTED AVERAGE COMMON
     STOCK OUTSTANDING                                  1,586,187

     The pro forma results or operations are not  necessarily  indicative of the
     actual  operating  results  that would have  occurred  had the merger  been
     consumated at the beginning of the year.

     Principles of Consolidation

     The accompanying  consolidated  financial statements for the year ended May
     31, 1997 include the accounts of Prime Cellular,  Inc. and its wholly-owned
     subsidiaries,  Bern  Communications,  Inc.  and Prime  Cellular of Florida,
     Inc., an inactive  subsidiary.  All significant  intercompany  accounts and
     transactions have been eliminated in consolidation.  For the year ended May
     31, 1996, and the period February 22, 1995 (inception) to May 31, 1995, the
     accompanying  financial statements reflect the accounts of Bern Associates,
     Inc., prior to the merger.


     Cash Equivalents

     For purposes of the  statement  of cash flows,  the Company  considers  all
     short-term investments with an original maturity of three months or less to
     be cash equivalents.


     Inventory

     Inventory,  which consists of computer equipment, is stated at the lower of
     cost or market.  Cost is determined  using the first-in,  first-out  (FIFO)
     method.


     Property and Equipment
 
     Property  and  equipment  are stated at cost and are being  depreciated  or
     amortized using  accelerated and  straight-line  methods over the estimated
     useful lives of the related assets.


                                       F-9


<PAGE>


                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



NOTE 1 - Summary of Significant Accounting Policies, continued

     Revenue Recognition
 
     Equipment  revenue is  recognized  upon  delivery to and  acceptance by the
     customer.  Service  revenue  consists of consulting  and help desk revenue.
     Consulting  revenue is  recognized  ratably  over the  applicable  contract
     period. Help desk revenue is recognized as earned on a monthly basis.

     Fair Value of Financial Instruments

     The  carrying  amount  of  financial  instruments  including  cash and cash
     equivalents,  other  receivables,  and accounts payable  approximated  fair
     value as of May 31, 1997 and 1996 because of the relatively  short maturity
     of these instruments.

     Credit Risk

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations   of  credit  risk  consist   primarily  of  temporary  cash
     investments and trade accounts  receivable with companies primarily located
     in the United States.  The Company's cash  investments are placed with high
     credit quality financial  institutions and may exceed the amount of federal
     deposit  insurance.  The Company reviews a customer's credit history before
     extending credit. The Company  establishes an allowance for possible losses
     based  on  factors  surrounding  the  credit  risk  of  specific  customers
     historical trends and other information.

     Income Taxes

     Deferred income taxes, when applicable, are provided on differences between
     the financial  reporting  and income taxes bases of assets and  liabilities
     based upon statutory tax rates enacted for future periods.

     Per Share Data

     Loss per share is  computed by dividing  net loss by the  weighted  average
     number of common shares  outstanding  throughout  the period.  For the year
     ended May 31, 1996 and the period February 22, 1995  (inception) to May 31,
     1995, loss per share of common stock is based on the shares issued by Prime
     as a result of the Merger (see Note 1). Common stock equivalents consisting
     of shares  subject to stock  options and warrants do not have a significant
     impact on net loss per share.

     Stock-Based Compensation

     In October 1995,  Financial Accounting Standards Board issued Statements of
     Financial  Accounting  Standards.  No.  123  "Accounting  for  Stock  Based
     Compensation" ("SFAS No. 123"). SFAS No. 123 requires  compensation expense
     to be recorded (i) using the new fair value  method or (ii) using  existing
     accounting rules prescribed by Accounting  Principles Board Opinion No. 25,
     "Accounting  for  Stock  Issued  to  Employees"   ("APB  25")  and  related
     interpretations  with pro forma  disclosure of what net income and earnings
     per  share  would  have been had the  Company  adopted  the new fair  value
     method.  The  Company  intends to  continue  to account for its stock based
     compensation  plans in  accordance  with the  provision  of APB 25. Had the
     Company elected to recognize  compensation costs based on the fair value of
     the options at the date of grant as prescribed by SFAS No. 123, there would
     be no material effect from that recognized under APB 25 for the years ended
     May 31, 1997,  1996 and for the period  February 22  (inception) to May 31,
     1995.

     Advertising

     Advertising costs are expensed as incurred.

     Software Development

     All costs  associated  with internally  developed  software are expensed as
     incurred.

     Reclassifications

     Certain  amounts  have  been  reclassified  in the 1996 and 1995  Financial
     Statements to be comparable to the Financial Statements presented for 1997.


                                      F-10


<PAGE>


                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



NOTE 1 - Summary of Significant Accounting Policies, continued

     Use of Estimates in the Financial Statements

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


NOTE 2 - Investments

     The Company's  investments were classified as held-to-maturity and reported
     at   amortized   cost   which   approximates   fair   value.    Investments
     held-to-maturity are summarized as follows:


                                                         Gross
                                          Amortized    Unrealized        Fair
                                             Cost         Gains          Value
                                          ----------   ----------    ----------
May 31, 1997:
 Debt securities issued by the
  U.S. Treasury                           $4,969,512    $   8,613    $4,978,125


NOTE 3 - Property and Equipment

     Property and equipment at May 31, 1997 and 1996 consist of the following:


                                                                     Estimated
                                             1997          1996     Useful Lives
                                          ----------   ----------  ------------
     Computer equipment                      $222,342    $130,827     5-7 years
     Furniture and fixtures                       509         509     5-7 years
                                          ----------   ----------    
                                              222,851     131,336

     Less:  accumulated depreciation           46,074      12,183
                                          ----------   ----------    

       Total Property and Equipment, Net     $176,777    $119,153
                                          ==========   ==========    

     Depreciation  expense  amounted  to $33,891 and $12,183 for the years ended
     May 31, 1997 and 1996, respectively.


                                      F-11


<PAGE>


                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



NOTE 4 - Note Payable, Related Party

     On May 15, 1996, Bern Communications,  Inc. entered into a revolving credit
     agreement with Prime Cellular, Inc. in the amount of $1,000,000, payable on
     demand at the prime rate.  At May 31, 1996 the  balance  outstanding  under
     this note was  $500,000.  Subsequent to the merger which took place on June
     11, 1996,  the note was converted to contributed  capital and  accordingly,
     has been eliminated in consolidation at May 31, 1997.


NOTE 5 - Stock Options

     The 1990 Stock Option Plan (the "Plan") provides for the granting of either
     stock options  intended to qualify as "incentive  stock  options" under the
     Internal  Revenue  Code  or  "non-statutory  stock  options"  for  up to an
     aggregate of 1,000,000  shares of common stock.  Options may be granted for
     terms of up to ten years and are exercisable as determined by the Company's
     Board of Directors (the  "Board").  The option price under the plan must be
     no less than fair market value of the shares on date of grant,  except that
     the  term  of an  incentive  stock  option  granted  under  the  Plan  to a
     stockholder  owning more than 10% of the  outstanding  common stock may not
     exceed five years and its  exercise  price may not be less than 110% of the
     fair market value of the common stock on the date of the grant.

     On June 12, 1996, the Company  granted options to purchase 40,000 shares at
     $2.50  per  share  and on July 5,  1996  granted  options  to  purchase  an
     aggregate of 1,025,000  shares at $8.00 per share.  The options  granted on
     July  5,  1996  were  subsequently  canceled  pursuant  to  the  Settlement
     Agreement signed on August 28, 1997 (see Note 9).

     The  following is a summary of  transactions  for shares under option as of
     May 31, 1997:


                                              Amount                Exercise
                                             of Shares                Price
                                            ----------           --------------
     Outstanding, beginning of year           267,000            $1.50 to $1.67

     Granted during the year                1,065,000            $2.50 to $8.00
     Canceled (see Note 9)                 (1,025,000)               $8.00
     Exercised during the year                (50,000)               $1.50
                                           ----------

     Outstanding, end of year                 257,000
                                           ==========

     At May 31, 1997 there were 50,000 shares reserved for future grants.


                                      F-12


<PAGE>


                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS



NOTE 6 - Income Taxes

     Deferred  income taxes are provided for temporary  differences  between the
     financial  reporting  basis and the tax basis of the  Company's  assets and
     liabilities.  As of May 31, 1997 and 1996,  the Company had gross  deferred
     tax assets of $277,000 and $110,000,  respectively. These amounts represent
     the approximate  tax effects of net operating  losses that give rise to the
     Company's  deferred tax assets.  A valuation  allowance has been recognized
     for the entire deferred tax assets at May 31, 1997 and 1996.

     As of May 31,  1997 and 1996  the  Company  had net  operating  loss  carry
     forwards of approximately $794,000 and $320,000,  respectively which expire
     at various dates through 2012.

NOTE 7 - Commitments and Contingencies

     Leasing Commitments

     The Company  occupies  office  premises in  Stamford,  Connecticut;  Aspen,
     Colorado and Teaneck, New Jersey through various leasing arrangements.

     Lease commitments, under non-cancellable lease agreements in the aggregate,
     under such leasing arrangements, are as follows:


                    Year Ending
                       May 31,               Amount
                        1998                $10,000
                                            =======

     Rent  expense for the years ended May 31, 1997 and May 31, 1996 and for the
     period  February 22, 1995  (inception) to May 31, 1995 is $40,607,  $12,000
     and -0-, respectively.

     Litigation

     The Company is presently in litigation  against  former  employees  seeking
     unspecified  damages.  In December  1996,  the Company  commenced an action
     against one former  employee  alleging  the former  employee  breached  his
     obligations  as an employee of the Company by, among other things,  various
     acts of dishonesty,  breaches of fiduciary trust and corporate  waste.  The
     former  employee  filed a  separate  action  against  the  Company  seeking
     unspecified amounts pursuant to the purported employment agreement.

     In December 1996,  Bern commenced an action against a former employee and a
     relative   of  the  former   employee,   alleging   false  and   fraudulent
     representations  in connection with the merger of Bern and Bern Associates,
     Inc. and breach of her  obligations  as an employee of Bern by, among other
     things,  various  acts  of  dishonesty,  breaches  of  fiduciary  duty  and
     corporate  waste. In the action,  Bern is seeking an unspecified  amount of
     damages and seeks rescission to recover the shares of the Company issued to
     the  defendants  pursuant  to the  merger.  This  former  employee  filed a
     counterclaim  that seeks  unspecified  amounts  for  alleged  breach of her
     employment agreement.



                                      F-13


<PAGE>


                      PRIME CELLULAR, INC. AND SUBSIDIARIES

                          NOTES TO FINANCIAL STATEMENTS


NOTE 7 - Commitments and Contingencies, continued

     Litigation, continued

     The Company  believes the claims of such former employees are without merit
     and that it will prevail in these actions. However, the ultimate outcome of
     these matters cannot presently be determined. Accordingly, no provision for
     any liability that may result  therefrom has been made in the  accompanying
     financial statements.


NOTE 8 - Economic Dependency

     The Company sells a substantial portion of its services and products to one
     major  customer.  Sales to major customers which exceed 10% of sales in the
     aggregate and accounts receivable from such customer are as follows:


                                                          1997           1996
                                                       ----------    ----------
     Sales to major customers                          $1,574,000    $2,004,000

     Accounts receivable from major customers          $   39,000      $249,000


NOTE 9 - Subsequent Events

     Settlement Agreement

     On August 28,  1997,  pursuant to a  Settlement  Agreement  between  Prime,
     Prime's  wholly-owned  subsidiary,  Bern and certain former stockholders of
     Bern  Associates,  Inc.  (the  "Settling  Shareholders"),  an agreement was
     reached whereby Prime purchased all of the shares of common stock from each
     Settling  Shareholder which in the aggregate  amounted to 676,937 shares at
     $.50 per share for a total amount of $338,469. In addition,  Prime and Bern
     transferred  their rights,  title and interest in certain computer software
     programs and certain  computer  equipment to the Settling  Shareholders who
     were both former  stockholders  of Bern  Associates,  Inc.  and officers of
     Bern. In exchange,  the Settling Shareholders signed a general release with
     respect to previous employment  contracts,  confirmed prior resignations as
     officers  and/or  directors of Prime and/or Bern,  as  applicable,  and the
     termination of any options to purchase securities of Prime or Bern.

          In connection  with the  Settlement,  Bern ceased  soliciting  further
     opportunities or engaging in any further consulting  services in connection
     with its integrated Internet access service business.  Moreover,  all sales
     of computer hardware and/or software of Bern were discontinued effective as
     of the Settlement.  Bern  Communications will continue to provide help desk
     functions as well as network  management  services pursuant to its existing
     contractual arrangements.


                                      F-14