<PAGE>

                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549

                                     FORM 10-Q

(Mark One)

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

                 For the Quarterly Period Ended September 30, 1998

                                         or

[ ]     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: 333-3288

                         CS Wireless Systems, Inc.
               (Exact name of Registrant as specified in its charter)

          Delaware                                        23-2751747
(State or other jurisdiction of                       (I.R.S. Employer 
 incorporation or organization)                      Identification No.)

       1101 Summit Avenue, Plano, Texas                      75074   
   (Address of principal executive offices)               (Zip Code)

                                   (972) 398-5300
                (Registrant's telephone number, including area code)

     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 [  ]
     
     Number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
                                                    Shares Outstanding
                        Class                    as of November 20, 1998  
                        -----                    ----------------------- 
           Common Stock, $.001 par value                10,700,506



                                       1
<PAGE>

                                 INDEX TO FORM 10-Q
                      FOR THE QUARTER ENDED SEPTEMBER 30, 1998
                                          
                                          
<TABLE>
<S>                                                                              <C>
Part I -  Financial Information
     
     Item 1.   Financial Statements
               
               Condensed Consolidated Balance Sheets                               3
               Condensed Consolidated Statements of Operations                     4
               Condensed Consolidated Statements of Cash Flows                     5

     Item 2.   Management's Discussion and Analysis of Financial Condition         
               and Results of Operations                                           8


Part II   Other Information

     Item 1.   Legal Proceedings                                                  14

     Item 5.   Other Information                                                  14

     Item 6.   Exhibits and Reports on Form 8-K                                   14


Signatures                                                                        15
</TABLE>

                                       2
<PAGE>

PART  I  -  FINANCIAL INFORMATION
ITEM 1.
                              FINANCIAL STATEMENTS

                   CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30,      DECEMBER 31,
                                                                        1998             1997     
                                                                   -------------      ----------- 
                                                                    (Unaudited)

     ASSETS
<S>                                                                  <C>               <C>
Current assets:
   Cash and cash equivalents ....................................... $  45,394         $  74,564
   Restricted cash .................................................     4,222             5,030
   Subscriber receivables, net .....................................     1,030             1,026
   Accounts receivable from affiliates .............................       265                --
   Prepaid expenses and other ......................................       929               939
                                                                     ---------         --------- 
        Total current assets .......................................    51,840            81,559

Plant and equipment, net ...........................................    54,905            50,519
License and leased license investment, net (Note 2) ................   168,247           170,689
Goodwill, net (Note 2) .............................................        --            48,243
Investment in and loans to equity affiliates .......................     6,983             8,503
Debt issuance costs and other assets, net ..........................     8,609            11,190
                                                                     ---------         --------- 
                                                                     $ 290,584         $ 370,703
                                                                     ---------         --------- 
                                                                     ---------         --------- 
         LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
   Accounts payable and accrued expenses ........................... $   6,042         $   8,370
   Accounts payable to affiliates ..................................        --               282
   Current portion of long-term debt ...............................       209               217
   Current portion of BTA auction payable ..........................       371             1,122
   Other current liabilities .......................................       914             1,523
                                                                     ---------         --------- 
         Total current liabilities .................................     7,536            11,514

Long-term debt, less current portion ...............................   308,010           283,686
BTA auction payable, less current portion ..........................     3,571             3,274
                                                                     ---------         --------- 
        Total liabilities ..........................................   319,117           298,474
                                                                     ---------         --------- 
Stockholders' equity (deficit):
   Common stock, $.001 par value; authorized 40,000,000 shares at 
     December 31, 1997 and 15,000,000 shares at September 30, 1998;
     issued and outstanding 10,702,609 shares in 1998 and 1997 .....        11                11
   Treasury stock, at cost; 2,103 shares in 1998 and 1997 ..........       (40)              (40)
   Additional paid-in capital ......................................   154,557           154,557
   Accumulated deficit .............................................  (183,061)          (82,299)
                                                                     ---------         --------- 
        Total stockholders' equity (deficit) .......................   (28,533)           72,229
                                                                     ---------         --------- 
                                                                     $ 290,584         $ 370,703
                                                                     ---------         --------- 
                                                                     ---------         --------- 
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                       3
<PAGE>

                   CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In thousands, except share data)


<TABLE>
<CAPTION>
                                               THREE MONTHS ENDED             NINE MONTHS ENDED
                                                   SEPTEMBER 30,                 SEPTEMBER 30,
                                            --------------------------    --------------------------  
                                                1998           1997          1998           1997
                                            -----------    -----------    -----------    -----------  
<S>                                         <C>            <C>            <C>            <C>
Revenue ..................................  $     6,448    $     6,746    $    20,076    $    20,246 
Operating expenses:
   Systems operations ....................        4,094          3,822         12,019         11,174
   Selling, general and administrative ...        4,500          4,528         13,602         12,299
   Impairment of goodwill (Note 2) .......           --             --         46,378             --
   Depreciation and amortization .........        7,062          6,976         22,003         20,266
                                            -----------    -----------    -----------    -----------  
      Total operating expenses ...........       15,656         15,326         94,002         43,739
                                            -----------    -----------    -----------    -----------  
Operating loss ...........................       (9,208)        (8,580)       (73,926)       (23,493)
                                            -----------    -----------    -----------    -----------  
Other income (expense):
   Interest income .......................          803          1,379          2,746          4,261
   Interest expense ......................       (8,765)        (7,863)       (25,657)       (23,952)
   Equity in losses of affiliates ........         (292)          (385)        (2,057)          (385)
   Other .................................           --             (7)            --            648
                                            -----------    -----------    -----------    -----------  
      Total other expense, net ...........       (8,254)        (6,876)       (24,968)       (19,428)
                                            -----------    -----------    -----------    -----------  
Loss before income taxes and
   cumulative effect of change in
   accounting principle ..................      (17,462)       (15,456)       (98,894)       (42,921)
Income tax benefit .......................           --          1,358             --          4,072
                                            -----------    -----------    -----------    -----------  
Loss before cumulative effect
   of change in accounting principle .....  $   (17,462)   $   (14,098)   $   (98,894)   $   (38,849)
Cumulative effect of change in
   accounting principle for
   organizational costs ..................           --             --         (1,868)            --  
                                            -----------    -----------    -----------    -----------  
Net loss .................................  $   (17,462)   $   (14,098)   $  (100,762)   $   (38,849) 
                                            -----------    -----------    -----------    -----------  
Basic and diluted loss per common
   share before cumulative effect of
   change in accounting principle ........  $     (1.63)   $     (1.32)   $     (9.24)   $     (3.66)
                                            -----------    -----------    -----------    -----------  
                                            -----------    -----------    -----------    -----------  
Basic and diluted loss per common
   share .................................  $     (1.63)   $     (1.32)   $     (9.42)   $     (3.66)
                                            -----------    -----------    -----------    -----------  
                                            -----------    -----------    -----------    -----------  
Weighted average basic and
   diluted shares outstanding.............   10,700,506     10,700,506     10,700,506     10,618,451  
                                            -----------    -----------    -----------    -----------  
                                            -----------    -----------    -----------    -----------  
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                       4
<PAGE>

                   CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES

            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                            NINE MONTHS ENDED
                                                                     -------------------------------   
                                                                     SEPTEMBER 30,     SEPTEMBER 30,   
                                                                         1998              1997        
                                                                     -------------     -------------   
<S>                                                                  <C>               <C>
Cash flows from operating activities:
  Net loss..........................................................  $ (100,762)      $   (38,849)
  Adjustments to reconcile net loss to net cash used in 
   operating activities:
    Depreciation and amortization....................................     22,003            20,266
    Deferred income taxes............................................         --            (4,072)
    Accretion on discount notes and amortization of debt
      issuance costs.................................................     25,055            22,444
    Non-cash interest expense on other long-term debt................        602             1,402
    Equity in losses of affiliates...................................      2,057               385
    Impairment of goodwill (Note 2)..................................     46,378                --
    Cumulative effect of change in accounting principle for
      organizational costs ..........................................      1,868                --
    Gain on sale.....................................................         --              (648)
    Other  ..........................................................        250                --
    Changes in operating assets and liabilities:
      Subscriber receivables.........................................         (4)              273
      Prepaid expenses and other.....................................       (505)             (144)
      Accounts payable, accrued expenses and other liabilities.......     (2,323)           (1,630)
                                                                      ----------       ----------- 
          Net cash used in operating activities......................    (5,381)              (573)
                                                                      ----------       ----------- 
Cash flows from investing activities:
  Purchases of plant and equipment...................................    (16,991)          (12,796)
  Additions to license and leased license investment.................     (4,589)           (2,727)
  Investment and advances to equity affiliates.......................     (1,270)           (5,899)
  Investment in assets held for sale.................................         --              (943)
  Investment in restricted cash......................................        808            (5,030)
  Proceeds from sale of assets held for sale.........................         --            16,350
  Other..............................................................       (160)             (540)
                                                                      ----------       ----------- 
          Net cash used in investing activities......................    (22,202)          (11,585)
                                                                      ----------       ----------- 
Cash flows from financing activities:
  Payments on notes payable..........................................       (125)          (17,377)
  Payment on capital leases and other................................        (96)              (84)
  Payment on BTA auction payable.....................................     (1,366)               --
                                                                      ----------       ----------- 
          Net cash used in financing activities......................     (1,587)          (17,461)
                                                                      ----------       ----------- 
Net decrease in cash and cash equivalents............................ $  (29,170)      $   (29,619)
                                                                      ----------       ----------- 
Cash and cash equivalents at beginning of period.....................     74,564           113,072
                                                                      ----------       ----------- 
Cash and cash equivalents at end of period........................... $   45,394       $    83,453
                                                                      ----------       ----------- 
                                                                      ----------       ----------- 
</TABLE>

See accompanying notes to unaudited condensed consolidated financial statements

                                       5
<PAGE>

                CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 
                          September 30, 1998
                               (Unaudited)

(1)  GENERAL

     (a)  DESCRIPTION OF BUSINESS

     THE COMPANY. CS Wireless Systems, Inc. (together with its subsidiaries, 
"CS" or the "Company") is one of the largest wireless cable television 
companies in the United States in terms of line-of-sight ("LOS") households 
and subscribers.  The Company's 21 markets encompass approximately 7.7 
million television households, approximately 6.4 million of which are LOS 
households, as estimated by the Company. The Company provided video 
programming to an average of 64,640 subscribers during the quarter ended 
September 30, 1998.  The Company has begun to minimize its efforts to attract 
analog-based television subscribers and is currently evaluating the results 
of its controlled digital television roll-out in the Dallas, Texas market 
which began in the third quarter of 1998.  The Company has commenced a 
limited commercial offering of Internet access services in its Dallas, Texas 
market.  Additionally, the Company offers certain telephony services through 
agreements with certain local exchange carriers and a long distance carrier.

          At November 20, 1998, CAI Wireless Systems, Inc. ("CAI") and 
Heartland Wireless Communications, Inc. ("Heartland") owned 60% and 36%, 
respectively, of the outstanding Common Stock of the Company.  CAI is one of 
the largest developers, owners and operators of wireless cable television 
systems in the United States. CAI and one of its  wholly owned subsidiaries 
filed voluntary petitions for relief under Chapter 11 of Title 11 of the 
United States Code (the "Bankruptcy Code") on July 30, 1998.  The Plan of 
Reorganization submitted by CAI and its subsidiary was confirmed by the 
United States Bankruptcy Court for the District of Delaware on September 30, 
1998 and consummated on October 14, 1998.  Heartland has announced its 
intention to file a voluntary petition for relief under Chapter 11 of the 
Bankruptcy Code in November 1998.  Heartland is a leading developer, owner 
and operator of wireless cable systems in small to mid-size markets located 
in the central United States.

     PRINCIPAL MARKETS OF THE COMPANY.  On February 23, 1996, in exchange for
approximately 60% of the Company's Common Stock, CAI, directly or indirectly,
contributed to the Company the wireless cable television assets and all related
liabilities, or the stock of subsidiaries owning wireless cable television
assets associated with the wireless cable television markets of Bakersfield and
Stockton/Modesto, California; Charlotte, North Carolina; and Cleveland, Ohio
(the "February 23, 1996 Contributions").  Simultaneously, in exchange for
approximately 40% of the Company's Common Stock, cash, a short-term note and a
long-term note (the "Heartland Long-Term Note"), Heartland, directly or
indirectly, contributed or sold to the Company the wireless cable television
assets and all related liabilities associated with the wireless cable television
markets of Grand Rapids, Michigan; Minneapolis, Minnesota; Kansas City
(suburbs), Missouri; Dayton, Ohio; Dallas, Fort Worth and San Antonio, Texas;
and Salt Lake City, Utah. The Company subsequently acquired wireless cable
television rights and related assets in certain Midwest markets including the
Effingham and Wellsville, Kansas; Story City, Iowa; Scottsbluff, Nebraska;
Kalispell, Montana and Rochester, Minnesota markets in connection with the
Company's merger acquisition of USA Wireless Cable, Inc. on October 11, 1996
("USA Wireless Acquisition"). The Company consummated on September 3, 1997 an
exchange of its wireless cable rights and related assets in Salt Lake City, Utah
for wireless cable rights and related assets in Kansas City, Missouri pursuant
to an agreement dated as of November 6, 1996 with People's Choice TV Corp.

     (b)  BASIS OF PRESENTATION

          The unaudited condensed consolidated financial statements include the
accounts of the Company and its subsidiaries.  All significant intercompany
accounts and transactions have been eliminated in consolidation.

     (c)  INTERIM FINANCIAL INFORMATION

          In the opinion of management, the accompanying unaudited condensed
consolidated financial statements of the Company contain all adjustments,
consisting only of those of a normal recurring nature, necessary to present
fairly the Company's financial position as of September 30, 1998, and the
results of operations for the three and nine months ended September 30, 1998 and
1997 and cash flows for the nine months ended September 30, 1998 and 1997. These
results are not necessarily indicative of the results to be expected for the
full fiscal year.

                                      6
<PAGE>

                     CS WIRELESS SYSTEMS, INC. AND SUBSIDIARIES
          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                 September 30, 1998
                                    (Unaudited)

     (d)  COMMON SHARES OUTSTANDING AND NET LOSS PER COMMON SHARE

          The Company adopted the provisions of Statement of Financial 
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," in the 
fourth quarter of 1997, which required companies to present basic earnings 
per share and diluted earnings per share. Earnings per share computations for 
all comparative periods have been restated to reflect the adoption of SFAS 
128. Basic earnings per share is computed by dividing income available to 
common stockholders by the weighted average number of common shares 
outstanding during the period.  Diluted earnings per share reflects the 
potential dilution that could occur if securities or other contracts to issue 
common stock were exercised or converted into common stock. Potentially 
dilutive securities have been excluded from the diluted loss per share 
computation as their inclusion would be antidilutive.

     (e)  REDUCTION IN AUTHORIZED SHARES

          On August 21, 1998, the Company filed with the Secretary of State of
Delaware a Certificate of Amendment of Amended and Restated Certificate of
Incorporation reducing the number of authorized shares of common stock from 40
million to 15 million and eliminating the authorized preferred shares.

(2)  LONG-LIVED ASSETS

     Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), 
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets 
to be Disposed of," requires that long-lived assets and certain identifiable 
intangibles be periodically reviewed for impairment whenever events or 
changes in circumstances indicate that the carrying amount of an asset may 
not be recoverable. Recoverability of assets to be held and used is measured 
by a comparison of the carrying amount of an asset to estimated future net 
cash flows expected to be generated by the asset. If such assets are 
considered to be impaired, the impairment to be recognized is measured by the 
amount by which the carrying amount of the assets exceeds the fair value of 
the assets. Assets to be disposed of are reported at the lower of the 
carrying amount or fair value less costs to sell. Pursuant to SFAS No. 121, 
the Company periodically reviews wireless channel rights and other long-lived 
assets whenever events or changes in circumstances indicate that the carrying 
amount of such assets may not be recoverable. 

     The Company believes that the reorganization of CAI under Chapter 11 of 
the Bankruptcy Code, the announcement by Heartland of its intention to file a 
voluntary petition for relief under Chapter 11 of the Bankruptcy Code and the 
announcements of other wireless cable companies regarding their intentions to 
review financial restructuring alternatives are circumstances that make it 
appropriate for the Company to evaluate the impairment of long lived assets 
and certain identifiable intangibles.  Accordingly, the Company recorded a 
write-down of $46.4 million of goodwill at June 30, 1998.  The Company 
engaged a third party during the third quarter to assist in completing a 
recoverability and valuation analysis of all of its long-lived assets.  The 
Company may record further reductions in the carrying value of certain 
long-lived assets in subsequent reporting periods upon completion of the 
analysis and such reductions could be material to the Company's financial 
statements.

(3)  CONTINGENCIES

     The Company is a party to legal proceedings incidental to its business.  A
discussion of certain of these legal proceedings is contained in Part II, Item 1
"Legal Proceedings" of this Form 10-Q.  The Company believes that the ultimate
resolution of any legal proceeding to which the Company is a party will not have
a material adverse effect on the Company's consolidated financial position,
operating results or liquidity.

(4)  SUBSEQUENT EVENTS

     As previously disclosed, the Company purchased in July 1998 the 
leasehold rights of TelQuest Satellite Services LLC ("TelQuest") in certain 
headend equipment owned by CAI for $1.9 million in furtherance of the 
development of a contingency plan designed to ensure uninterruptible delivery 
of digital video programming services.  The members of TelQuest include CAI, 
the Company and TelQuest Communications, Inc.  Jared E. Abbruzzese, the 
Company's Chairman, holds, through various affiliates, the majority interest 
in TelQuest Communications, Inc.  In October, the Company commenced the 
relocation of certain of the leased headend equipment from the TelQuest 
facilities in Atlanta, Georgia to Dallas, Texas.  The Company anticipates 
that relocation of the equipment will be complete by the end of November.

                                      7

<PAGE>

ITEM 2.

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                             AND RESULTS OF OPERATIONS

OVERVIEW 

     CS Wireless Systems, Inc. and its subsidiaries develop, own and operate 
a network of wireless cable television systems providing subscription 
television services. The Company has begun to minimize its efforts to attract 
analog based television subscribers and is currently evaluating the results 
of its controlled digital television roll-out in the Dallas, Texas market 
which began in the third quarter of 1998.  The Company has commenced a 
limited commercial offering of high-speed Internet access services in Dallas, 
Texas.  Additionally, the Company offers certain telephony services through 
agreements with certain local exchange carriers and a long distance carrier. 
The Company had systems in operation in eleven markets at September 30, 1998 
compared to ten systems in the corresponding prior year period. 

RESULTS OF OPERATIONS
     
     REVENUE.  The Company's video revenue primarily consists of monthly fees 
paid by subscribers for basic programming, premium programming, equipment 
rental and non-recurring installation fees.  Total revenue was $6.4 million 
and $20.1 million for the three and the nine months ended September 30, 1998 
compared to $6.7 million and $20.2 million for the corresponding prior year 
periods. Average video subscribers were approximately 64,640 and 66,380 for 
the three and nine months ended September 30, 1998 compared to approximately 
65,425 and 65,520 for the prior year periods.  The decrease in average 
subscriber levels during the three months ended September 30, 1998 is 
primarily attributed to the Company's strategy of not pursuing  growth in the 
analog-subscriber base, partially off-set by a modest increase in digital 
video subscribers in Dallas, Texas.  The increase in average subscriber 
levels during the nine months ended September 30, 1998 is due to the Company 
assuming control of the Story City, Iowa market on December 30, 1998, a 
modest increase in digital video subscribers, both off-set by the decrease in 
the analog subscriber base

     SYSTEMS OPERATIONS.  Systems operations expenses primarily include 
programming costs, channel lease payments, transmitter site and tower 
rentals, and other costs of providing service.  Programming costs (with the 
exception of minimum payments) and channel lease payments (with the exception 
of certain fixed payments) are variable expenses which generally increase as 
the number of subscribers increases.  Systems operations expenses were $4.1 
million and $12.0 million for the three and the nine months ended September 
30, 1998, compared to $3.8 million and $11.2 million for the corresponding 
prior year periods, an increase of 7.1% and 7.6%, respectively. The increase 
in systems operations expenses is primarily due to (i) increasing programming 
rates, (ii) incremental costs associated with the Company assuming 
operational control of the Story City, Iowa system on December 30, 1997 and 
(iii) additional costs associated with the controlled roll-out of digital 
video and high speed Internet access service in Dallas, Texas.

     SELLING, GENERAL AND ADMINISTRATIVE.  Selling, general and 
administrative expenses ("SG&A") were $4.5 million and $13.6 million for the 
three and nine months ended September 30, 1998, compared to $4.5 million and 
$12.3 million, an increase of 0.0% and 10.6%, respectively. The increase in 
SG&A during the nine months ended September 30, 1998, compared to the 
corresponding prior year period is principally due to (i) incremental costs 
associated with the Company assuming operational control of the Story City 
system on December 30, 1997 and (ii) additional costs associated with the 
controlled roll-out of digital video and high speed Internet access service 
in Dallas, Texas ($1.8 million for the nine months ended September 30, 1998 
compared to $1.0 million for the corresponding prior year period). 

                                      8

<PAGE>

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONTINUED)


     DEPRECIATION AND AMORTIZATION.  Depreciation and amortization expense 
includes depreciation of systems and equipment, amortization of licenses and 
leased license investment and goodwill.  Depreciation and amortization 
expenses were $7.1 million and $22.0 million for the three and nine months 
ended September 30, 1998, compared to $7.0 million and $20.3 million for the 
prior year periods.  The increase in depreciation and amortization expense is 
attributed to a corresponding average increase in the underlying capital 
assets. The write-down of goodwill during the second quarter of 1998 
effectively reduced amortization of goodwill during the three and nine months 
ended September 30, 1998.

     OPERATING LOSS.  The Company incurred operating losses of $9.2 million 
and $73.9 million for the three and nine months ended September 30, 1998, 
compared to $8.6 million and $23.5 million for the corresponding prior year 
periods. Consolidated earnings before interest, taxes, depreciation and 
amortization ("EBITDA") were a negative $2.1 million and $5.5 million for the 
three and nine months ended September 30, 1998, compared to a negative $1.6 
million and $3.2 million for the prior year periods.  EBITDA is a financial 
measure commonly used in the industry but is not intended to represent cash 
flows, as determined in accordance with Generally Accepted Accounting 
Principles ("GAAP"), or to be an indicator of operating performance. EBITDA 
is exclusive of the impairment of goodwill recorded in the quarter ended June 
30, 1998.  EBITDA should not be considered a substitute for measures of 
performance prepared in accordance with GAAP.  The increase in the Company's 
operating loss is due principally to the impairment of goodwill and, to a 
lesser extent, increasing system operations, SG&A, and depreciation and 
amortization expense as described above.  The decrease in EBITDA is 
primarily due to costs associated with controlled roll-out of digital video 
and high speed Internet access service in Dallas, Texas. 

     INTEREST INCOME.  Interest income was $0.8 million and $2.7 million for 
the three and nine months ended September 30, 1998, compared to $1.4 million 
and $4.3 million for the corresponding prior year periods.  The decrease in 
interest income is primarily due to a decrease in the average invested cash 
and cash equivalents.  The average invested balance is comprised mainly of 
the proceeds remaining from the private placement of $400.0 million of 11 
3/8% Senior Discount Notes (the "Senior Discount Notes") on February 23, 
1996, which resulted in net proceeds to the Company of $162.9 million (net of 
debt issuance, payments on notes and certain distributions to Heartland and 
CAI).  

     INTEREST EXPENSE.  The Company incurred interest expense of $8.8 million 
and $25.7 million for the three and nine months ended September 30, 1998, 
compared to $7.9 million and $24.0 million for the corresponding prior year 
periods.  Interest expense during the three and nine months ended September 
30, 1998 included (i) non-cash interest and accretion of deferred debt 
issuance costs of $8.5 million and $25.1 million related to the Senior 
Discount Notes, (ii) interest expense of $0.1 million and $0.2 million 
related to a note payable to Heartland in the amount of $15 million (the 
"Heartland Long Term Note") and (iii) interest relating to other payables 
totaling approximately $0.2 million and $0.4 million, respectively.  Interest 
expense during the three and nine months ended September 30, 1997 included 
(i) non-cash interest and accretion of deferred debt issuance costs of $7.6 
million and $22.4 million related to the Senior Discount Notes, (ii) interest 
expense of approximately $0.1 million and $1.0 million related to the 
Heartland Long-Term Note and (iii) interest relating to other payables of 
approximately $0.2 million and $0.6 million, respectively.  

     NET LOSS.  The Company has recorded net losses since inception.  The 
Company incurred net losses of $17.5 million and $100.8 million for the three 
and nine months ended September 30, 1998 compared to $14.1 million and $38.8 
million during the corresponding prior year periods.  The Company's net 
losses have increased due to (i) impairment of goodwill totaling $46.4 
million (See Note 2), (ii) increased SG&A, system operations, depreciation 
and amortization, and interest expense as detailed above and (iii) the 
cumulative effect of the change in accounting principal for organizational 
costs totaling $1.9 million.

LIQUIDITY AND CAPITAL RESOURCES

     The wireless cable television business is a capital-intensive business. 
Funds are required for the lease or acquisition of channel rights, the 
acquisition of wireless cable systems, the construction of system headend and 
transmission equipment, the conversion of analog systems to digital 
technology, and start-up costs related to the commencement of operations and 
subscriber installation costs. To date, the primary source of capital of the 

                                      9

<PAGE>

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONTINUED)

Company has been from the net proceeds from the sale of the Senior Discount 
Notes. The Company has approximately $45.4 million in cash and cash 
equivalents at September 30, 1998.  The Company has used the proceeds from 
the Senior Discount Notes received in February 1996 primarily to fund (i) 
continued operating losses, (ii) capital expenditures to launch digital video 
and high speed Internet access services in the Dallas, Texas market, hybrid 
digital service in the San Antonio, Texas market and limited build-out in the 
Company's analog markets, (iii) strategic investments in items such as 
channel capacity and (iv) general debt service.  Based upon the Company's 
current operating plans, the Company believes that its available cash will 
provide sufficient funds to meet its needs for at least the next 12 months.

     The Company is emphasizing the conservation of capital while it 
evaluates its controlled launch of digital video programming and limited 
commercial offering of Internet access in its Dallas market.  The Company 
intended to commence a full commercial launch of digital television services 
in its Dallas market in 1997. Towards that goal, the Company signed an 
agreement in 1997 with General Instrument Corp. ("General Instrument") for 
the purchase of equipment necessary to deliver digital signals to 
subscribers; the timely delivery of commercially viable equipment was an 
integral component of the Company's plans to offer digital video service.  
General Instruments experienced certain system integration problems with 
respect to the digital headend equipment and converter boxes.  Due to the 
delay in delivery of the required product, the Company and General Instrument 
agreed in February 1998 to amend certain contractual obligations relating to 
delivery dates, performance requirements, penalties and responsibilities in 
consideration for certain pricing concessions.  In connection with the 
amendment, the Company released General Instrument from any claims it may 
have had with respect to the failure of General Instrument to perform certain 
obligations prior to the deadlines prescribed in the original agreement.  The 
Company had anticipated that General Instrument would commence shipment of 
equipment required for the launch of digital services in Dallas during the 
second quarter of 1998, provided General Instrument successfully resolved 
certain outstanding integration problems.  General Instrument did not 
successfully resolve all problems and the intended full-scale commercial 
launch was further delayed.  The Company commenced a controlled roll-out of 
its digital video product to selected areas in its Dallas market subsequent 
to the end of the second quarter.  The Company is evaluating the results of 
the controlled rollout.

     For 1998, the Company had initially budgeted approximately $45.2 million 
in capital expenditures, including $13.1 million for digital subscriber 
installations, $9.3 million for analog subscriber installations, $2.6 million 
for headend and transmission equipment, $0.9 million relating to the 
build-out of markets to accommodate a new line of business, Internet access, 
$3.7 million to convert the Company's San Antonio analog markets to a hybrid 
digital format, and $15.6 million for strategic investments in items such as 
channel capacity.  Through September 30, 1998, the Company has incurred $21.4 
million in capital expenditures, significantly less than previously 
estimated.  The difference is primarily attributed to the delay of the full 
roll-out of digital video and Internet services in Dallas.  The Company's 
principal capital expenditures for the remainder of the year are expected to 
be significantly less than previously estimated and are expected to relate 
principally to the trials of two-way broad-band data and telephony services, 
the purchase of new channels and limited installation of subscriber premise 
equipment. The level of capital expenditures incurred for customer 
installations is primarily variable and dependent on the customer 
installation activities of the Company. Therefore, actual customer 
installation expenditures may be more or less than the Company's estimates. 
If the Company believes appropriate market conditions exist and all equipment 
problems are satisfactorily resolved, the Company may incur significant 
capital expenditures for customer installations and commit additional 
resources to marketing its Internet access business in 1999 and subsequent 
years. 

     The Company has converted much of its analog system in San Antonio, 
Texas to a hybrid digital format.  However, the problems with the equipment 
manufactured by General Instrument and the resulting impact on the intended 
commercial launch in the Company's Dallas market have caused management to 
delay completion of the conversion.  Further, an essential equipment 
manufacturer has filed a voluntary petition for relief under Chapter 11 of 
the Bankruptcy Code.  See "--LIQUIDITY AND CAPITAL RESOURCES--OTHER." 
Accordingly, additional expenditures may be required with respect to customer 
installation and/or conversion activities in San Antonio.  The Company is 
evaluating its other markets to determine where and when to convert existing 
analog markets to digital or offer hybrid digital services in conjunction 
with existing or planned analog services.  However, in the interim, the 
Company intends to minimize capital expenditures in its analog markets.

     The Company intends to finance its future capital requirements from 
existing cash, through a combination of the issuance of debt and equity 
securities, the disposition of wireless cable systems that are inconsistent 
with the Company's business strategy, the incurrence of loans, the assumption 
of debt and other liabilities in connection with acquisitions and alliances 
with strategic partners. There can be no assurances that the Company will be 
able to obtain any third party financing.

                                      10

<PAGE>

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONTINUED)

     The combined cash flow from operating activities of the Company's 
operating systems has to date been insufficient to cover the combined 
operating expenses of such systems. Until sufficient cash flow is generated 
from operations, the Company will utilize its current capital resources and 
may seek external sources of funding to satisfy its capital needs. Cash 
interest payments required under the terms of the Senior Discount Notes are 
scheduled to commence on September 1, 2001. There can be no assurance that 
the Company will be able to secure its capital requirements on terms and 
conditions satisfactory to the Company. Accordingly, in the event the Company 
is unable to secure funding for capital requirements on satisfactory terms 
and conditions, the ability of the Company to sustain and expand operations 
and fulfill its debt obligations would be materially adversely affected.

     Net cash used in operating activities during the nine months ended 
September 30, 1998 was $5.4 million compared to $0.6 million during the 
comparable prior year period.  The increase in cash used in operations was 
primarily due to (i) timing of payments to vendors, (ii) increased SG&A and 
system operating expense and (iii) to a lesser extent, increasing costs 
associated with the controlled roll-out of digital video and high speed 
Internet access services in Dallas, Texas.

     Net cash used in investing activities was $22.2 million during the nine 
months ended September 30, 1998 compared to $11.6 million during the 
corresponding prior year period.  Cash used in investing activities primarily 
relates to the acquisition and installation of subscriber receive-site 
equipment, the acquisition of certain wireless cable channel rights, the 
investments in assets held for sale and the investment in equity affiliates. 
The increase in net cash used in investing activities is primarily attributed 
to the proceeds from the assets held for sale totaling $16.4 million in 1997 
with no corresponding amounts in the current year period.

     Net cash used in financing activities was $1.6 million during the nine 
months ended September 30, 1998 compared to $17.5 million during the 
corresponding prior year period.  Cash used in financing activities during 
the nine months ended September 30, 1998 is attributed to the repayment of 
the payable relating to the Basic Trading Areas acquired in the Federal 
Communications Commission Auction totaling approximately $1.4 million and the 
repayment of other notes payable totaling approximately $0.2 million.  Cash 
used in financing activities during the nine months ended September 30, 1997 
is attributed to the repayment of $2.1 million of indebtedness related to the 
USA Wireless Acquisition and the repayment of $15.3 million of the Heartland 
Long-Term Note.

EXECUTIVE AND KEY EMPLOYEE RETENTION PROGRAM

     On November 12, 1998, the Compensation Committee of the Board of 
Directors authorized an Executive and Key Employee Retention Bonus program.  
Six executive officers (David E. Webb, Chief Executive Officer; Thomas W. 
Dixon, Executive Vice President; John Lund, Senior Vice President - Finance; 
Albert G. McGrath, Jr., General Counsel; Scott Mindemann, Vice President - 
Internet; and Steven Moncreiff, Vice President - Operations) were awarded 
retention bonuses of fifty percent (50%) of their respective annual base 
salaries.  The bonus awards are payable, in cash increments, upon 
satisfaction of certain identified performance benchmarks. Fifteen percent 
(15%) is payable upon the solicitation by the Company of the holders of at 
least 66 2/3% of the outstanding Senior Discount Notes in support of a plan 
of reorganization of the Company; thirty-five percent (35%) is payable upon 
consummation of a plan of reorganization restructuring the outstanding debt 
of the Company; thirty-five percent (35%) is payable upon the filing of 
applications with the Federal Communications Commission seeking two way 
authorization in certain specified markets; and fifteen percent (15%) payable 
upon execution of leases with MMDS and ITFS licenseholders in certain 
specified markets authorizing two way transmission by the Company in such 
markets.

Additionally, the Compensation Committee authorized and directed management 
of the Company to set aside up to a maximum aggregate sum of $200,000 to be 
distributed to key employees designated by management within certain 
parameters established by the Compensation Committee.

EMPLOYMENT AGREEMENTS

     During the third quarter, the Compensation Committee of the Board of 
Directors authorized the execution of an Employment Agreement with Mr. Lund.  
The Agreement has a three year term and requires the payment of an annual 
salary of $140,000.  The Committee also authorized the execution of a 
Separation Agreement with Frank H. Hosea, the Company's Chief Operating 
Officer, providing for, among other things, the continued payment of Mr. 
Hosea's base salary through April 1, 2000.

     On November 12, 1998 the Compensation Committee authorized the execution 
of a one year Employment Agreement with Mr. McGrath, the Company's General 
Counsel, and an amendment to Mr. Dixon's Employment Agreement.  Mr. McGrath's 
Employment Agreement requires the payment of an annual base salary of 
$145,000.  Mr. Dixon's amendment provides for certain benefits in the event 
of a relocation.

YEAR 2000 COMPLIANCE

     An undetermined number of computer software programs have been written 
using two digits rather than four to determine the applicable year.  As a 
result, date-sensitive computer software may recognize a date using "00" as 
the year 1900 rather than year 2000.  This could result in major system 
failures or miscalculations, and is generally referred to as the "Year 2000" 
problem.  An preliminary review of the Company's information systems has 

                                      11

<PAGE>

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONTINUED)

been completed and a comprehensive program is currently in process to modify 
or replace those systems that are not Year 2000 compliant.  Management 
believes that all Company systems are compliant, or will be compliant by 
September 1999. Additional validation of the Company's systems will be 
conducted through testing throughout 1999.

     In addition to the assessment of in-house systems, the Company is 
currently assessing the readiness of its vendors for the Year 2000 problem.  
To determine the status of third parties, letters inquiring as to their 
readiness have been sent or are being sent to substantially all of the 
Company's vendors.  The Company will assess the vendors' responses and 
prioritizing them in order of significance to the business of the Company.  
Contingency plans will be developed in the event that business-critical 
vendors do not provide the Company with satisfactory evidence of their 
readiness to handle Year 2000 issues.  The Company intends to make every 
reasonable effort to assess the Year 2000 readiness of these critical 
business partners and to create action plans to address the identified risks.

     The Company anticipates that it will have substantially completed an 
assessment of the Year 2000 compliance status of all information technology 
and non-information technology during the first quarter of 1999, and will 
then address the Year 2000 compliance of such equipment.

     All maintenance and modification costs will be expensed as incurred, 
while the cost of new software, if material, will be capitalized and 
depreciated over its expected useful life.  Testing and remediation costs of 
all of the Company's systems and applications are currently estimated at 
approximately $300,000 to $500,000 from inception in fiscal 1998 through 
completion in fiscal 2000.  These costs are estimated to be incurred during 
1999.  All estimated costs are expected to be funded from existing cash.

     The Company does not believe the costs related to the Year 2000 
compliance project will be material to its financial position or results of 
operation. However, the cost of the project and the date on which the Company 
plans to complete the Year 2000 modifications are based on management's best 
estimates, which were derived utilizing numerous assumptions of future events 
including the continued availability of certain resources, third party 
modification plans, and other factors.  Unanticipated failures by critical 
vendors as well as the failure by the Company to execute its own remediation 
efforts could have a material adverse effect on the cost of the project and 
its completion date.  As a result, there can be no assurance that these 
forward-looking estimates will be achieved and the actual cost and vendor 
compliance could differ materially from those plans, resulting in material 
financial risk.

CIBC 

     The Company has retained the investment banking firm of CIBC Oppenheimer 
Corp. ("CIBC") to serve as its financial advisor.  CS and CIBC have begun to 
evaluate available options with respect to the capitalization of the Company, 
including financial restructuring alternatives.  CIBC will assist the 
Company with respect to discussions and negotiations with the holders of the 
Senior Discount Notes concerning the appropriate capitalization of the 
Company.

OTHER

     Pacific Monolithics, Inc. ("Pac Mono"), a supplier of wireless cable 
subscriber and transmission equipment, filed a voluntary petition for relief 
under Chapter 11 of the Bankruptcy Code.  Pac Mono has advised the Company 
that it intends to phase out and discontinue certain product lines, including 
products utilized by the Company in its San Antonio market.  The Company is 
currently exploring alternatives to Pac Mono equipment and services.  The 
Company expects to incur certain costs relating to equipment purchases and 
personnel necessary to effect either a change in equipment or service of 
previously purchased equipment.

RECENTLY ISSUED ACCOUNTING STANDARDS

     The Company adopted the provisions of Statement of Financial Accounting 
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," in the 
first quarter of 1998, which required companies to disclose comprehensive 
income separately from net income.  Comprehensive income is defined as the 
change in equity during a period from transactions and other events and 
circumstances from non-ownership sources.  It includes all changes in equity 
during a period, except those resulting from investments by owners and 
distributions to owners.  

                                      12

<PAGE>

            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                       AND RESULTS OF OPERATIONS (CONTINUED)


The adoption of this statement had no effect on the Company for the three and 
nine months ended September 30, 1998 or 1997 because the Company has no 
elements of other comprehensive income.

     The Company adopted the provisions of Statement of Position 98-5 ("SOP 
98-5"), "Reporting On The Costs of Start-up Activity," in the second quarter 
of 1998, effective as of January 1, 1998. This pronouncement requires that 
costs of start-up activities, including organizational costs, should be 
expensed as incurred.  As a result of adopting SOP 98-5, the Company recorded 
a charge of approximately $1.9 million as the cumulative effect of the change 
in accounting principle as of January 1, 1998. 

     In June 1997, Statement of Financial Accounting Standards No. 131, 
"Disclosure About Segments of Enterprise and Related Information" was issued. 
This statement establishes standards for reporting information about 
operating segments in annual and interim financial statements, although this 
statement need not be applied to interim financial statements in the initial 
year of its application.  This statement is effective for fiscal years 
beginning after December 15, 1997.  The adoption of this statement is not 
expected to have a material impact on the Company's financial statements and 
related disclosures. 

FUTURE LOOKING INFORMATION AND RISK FACTORS

     The Company or its representatives may make forward looking statements, 
oral or written, including statements in this Report's Management's 
Discussion and Analysis of Financial Condition and Results of Operations, 
press releases and filings with the Securities and Exchange Commission 
("Commission"), regarding estimated future operating results, planned capital 
expenditures (including the amount and nature thereof) and the Company's 
financing plans, if any, related thereto, increases in subscribers and the 
Company's financial position and other plans and objectives for future 
operations. There can be no assurance that the actual results or developments 
anticipated by the Company will be realized or, even if substantially 
realized, that they will have the expected effects on its business or 
operations.  Among the factors that could cause actual results to differ 
materially from the Company's expectations are general economic conditions, 
competition, government regulations and other factors set forth among the 
risk factors noted in the Company's Annual Report on Form 10-K for the year 
ended December 31, 1997.

     Generally, forward looking statements include words or phrases such as 
"management believes," the "Company anticipates," the "Company expects" and 
words and phrases of similar import.  Forward looking statements are made 
pursuant to the Private Securities Litigation Reform Act of 1995.

     All subsequent oral and written forward looking statements attributable 
to the Company or persons acting on its behalf are expressly qualified in 
their entirety by these factors.  The Company assumes no obligation to update 
any of these statements.

     The Company's future revenues and profitability are difficult to predict 
due to a variety of risks and uncertainties, including (i) business 
conditions and growth in the Company's existing markets, (ii) the costs and 
level of consumer acceptance associated with the launch of systems in new 
markets, (iii) the availability and performance of digital compression 
equipment, (iv) the Company's existing indebtedness and the need for 
additional financing to fund subscriber growth and system development, (v) 
government regulation, including FCC regulations, and receipt of regulatory 
approvals for alternative uses of spectrum, (vi) the Company's dependence on 
channel leases, (vii) the announcements by other wireless cable companies 
regarding their respective intentions to restructure outstanding indebtedness 
and (viii) numerous competitive factors, including alternative methods of 
distributing and receiving video transmissions.

     Because the foregoing uncertainties could affect the Company's future 
operating results, past performance should not be considered to be a reliable 
indicator of future performance, and investors should not use historical 
trends to anticipate results or trends in future periods.  In addition, the 
Company's participation in a highly dynamic industry often results in 
significant volatility in the price of the Company's Senior Discount Notes.

     The Company's largest stockholder, CAI, and one of its wholly owned 
subsidiaries filed voluntary petitions for relief under Chapter 11 of the 
Bankruptcy Code on July 30, 1998. The Plan of Reorganization submitted by 
CAI and its subsidiary was confirmed by the United States Bankruptcy Court 
for the District of Delaware on September 30, 1998 and consummated on October 
14, 1998. Additionally, Heartland has announced its intention to file a 
voluntary petition for relief under Chapter 11 of the Bankruptcy Code.  There 
can be no assurance that any of the foregoing will not affect the Company.

                                      13

<PAGE>

                            PART II - OTHER INFORMATION

ITEM 1.        LEGAL PROCEEDINGS

     The Company is a party to legal proceedings incidental to its business 
which, in the opinion of management, are not expected to have a material 
adverse effect on the Company's consolidated financial position, operating 
results or liquidity. 

ITEM 5.        OTHER INFORMATION

     RECENT FEDERAL COMMUNICATIONS COMMISSION RULES.  On September 25, 1998, 
the Federal Communications Commission ("FCC") released rules for the use of 
MMDS spectrum for two way transmissions of data, telephony and video.  The 
rules require the filing of applications with the FCC in order to receive 
authorization for two way utilization of frequency spectrum in each market.  
The FCC has not yet announced a definitive date for the filing of 
applications; however, the Company anticipates that the first "filing window" 
will open at the FCC in the latter part of the first quarter or early in the 
second quarter of calendar year 1999.  The application process involves the 
formulation of a frequency plan and coordination of such frequency plan with 
licenseholders in each market in which two way approval is sought and, 
possibly, adjacent markets.  Following the close of the first "filing 
window", completed applications are reviewed in the order in which they are 
filed.  The Company has commenced the process to formulate its frequency plan 
in each of its markets.  There can be no assurance that the Company will be 
able to achieve coordination of its frequency plans with all licenseholders 
in all of its markets, that all or any of the Company's applications will be 
granted or that the FCC will grant to the Company authorization to utilize 
the frequency spectrum in the manner requested by the Company in its 
applications.

ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

<TABLE>
     <S>  <C>    <C>
     (a)  Exhibits

          *3.1   Certificate of Amendment of Amended and Restated Certificate of
                 Incorporation of CS Wireless Systems, Inc.

          *10.1  Amendment to Employment Agreement dated as of November 12, 1998
                 between Thomas W. Dixon and the Company.

          *10.2  Employment Agreement dated as of September 23, 1998 between
                 John M. Lund and the Company

          *10.3  Employment Agreement dated as of November 12, 1998 between
                 Albert G. McGrath, Jr. and the Company.

          *10.4  Separation Agreement dated as of October 19, 1998 between 
                 Frank H. Hosea and the Company.

          *27    Financial Data Schedule

     (b)  Reports on Form 8-K
          
          1.     Report on Form 8-K filed July 2, 1998 to report the appointment
                 of John Burgoyne to the Board of Directors of the Company and
                 Joseph W. Autem as Senior Vice President and Chief Financial
                 Officer.

          2.     Report on Form 8-K filed August 19, 1998 to report the
                 resignation of Joseph W. Autem as the Company's Senior Vice 
                 President and Chief Financial Officer and appointment of 
                 John M. Lund to the position of Senior Vice President - 
                 Finance.
</TABLE>

*Filed herewith.

                                      14

<PAGE>
                                     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.



                                   CS WIRELESS SYSTEMS, INC.


                                   By:  /s/ John M. Lund
                                        -------------------------------
                                   Senior Vice President - Finance and
                                   Chief Accounting Officer 
                                   (Principal Financial Officer)


                                    By: /s/ David E. Webb
                                        -------------------------------
                                    Chief Executive Officer
                                    (Principal Executive Officer)

Dated: November 23, 1998