<PAGE>   1

                                  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 June 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 0-23694
                                                -------

                     Heartland Wireless Communications, Inc.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)


          Delaware                                       73-1435149
--------------------------------------------------------------------------------
(State or Other Jurisdiction                (I.R.S. Employer Identification No.)
of Incorporation or Organization)           

200 Chisholm Place, Suite 200, Plano, Texas                75075
--------------------------------------------------------------------------------
(Address of Principal Executive Offices)                 (Zip Code)


Registrant's Telephone Number, Including Area Code       (972) 423-9494
                                                  ------------------------------
                                       N/A
--------------------------------------------------------------------------------
              Former Name, Former Address and Former Fiscal Year,
                         if Changed Since Last Report.

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

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

<TABLE>
<CAPTION>


                                                        Shares Outstanding
                    Class                              as of August 7, 1998
                    -----                              --------------------
<S>                                                    <C>
        Common Stock, $.001 par value                        19,750,219
</TABLE>


<PAGE>   2




                          PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS.

            HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>



                                                                                  JUNE 30,      DECEMBER 31,
                                                                                    1998            1997
                                                                                ------------    ------------
                                                                                (UNAUDITED)
                                   ASSETS

<S>                                                                             <C>             <C>         
Current assets:
      Cash and cash equivalents .............................................   $     38,403    $     42,821
      Restricted assets - investment in debt securities .....................            927           9,818
      Subscriber receivables, net of allowance for doubtful accounts of
            $348 in 1998 and $340 in 1997 ...................................          1,834           2,198
      Prepaid expenses and other ............................................          2,185           1,390
                                                                                ------------    ------------
                  Total current assets ......................................         43,349          56,227
Investments in affiliates, at equity ........................................         15,222          34,167
Systems and equipment, net ..................................................        111,369         122,653
License and leased license investment, net of accumulated amortization of
      $16,464 in 1998 and $12,929 in 1997 ...................................        102,298         123,369
Excess of cost over fair value of net assets acquired, net of accumulated
      amortization of $4,682 in 1998 and $3,685 in 1997 .....................         25,229          26,226
Restricted assets - investment in debt securities ...........................            515             515
Note receivable from affiliate ..............................................          2,213           2,069
Other assets, net ...........................................................          6,934           6,908
                                                                                ------------    ------------
                                                                                $    307,129    $    372,134
                                                                                ============    ============

                    LIABILITIES AND STOCKHOLDERS' EQUITY 

Current liabilities:
      Accounts payable and accrued expenses .................................   $     26,165    $     17,381
      Current portion of long-term debt .....................................        239,472           1,358
                                                                                ------------    ------------
                  Total current liabilities .................................        265,637          18,739
Long-term debt, less current portion ........................................         70,733         306,838
Minority interests in subsidiaries ..........................................            149             149
Stockholders' equity:
      Common stock, $.001 par value; authorized 50,000,000 shares, issued
        19,741,926 shares in 1998 and 19,670,135 shares in 1997 .............             20              20
      Additional paid-in capital ............................................        261,925         261,880
      Accumulated deficit ...................................................       (290,977)       (215,134)
      Treasury stock, 13,396 shares, at cost ................................           (358)           (358)
                                                                                ------------    ------------
                  Total stockholders' equity ................................        (29,390)         46,408
Commitments and contingencies (note 5) ......................................             --              --
                                                                                ------------    ------------

                                                                                $    307,129    $    372,134
                                                                                ============    ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.


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<PAGE>   3



            HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>




                                                                           THREE MONTHS ENDED      SIX MONTHS ENDED
                                                                                JUNE 30,                 JUNE 30,
                                                                          --------------------    --------------------
                                                                            1998        1997        1998        1997
                                                                          --------    --------    --------    --------
                                                                              (UNAUDITED)              (UNAUDITED)

<S>                                                                       <C>         <C>         <C>         <C>     
Revenues ..............................................................   $ 18,622    $ 19,741    $ 37,721    $ 38,926
                                                                          --------    --------    --------    --------

Operating expenses:
      Systems operations ..............................................      8,969      11,252      18,284      20,113
      Selling, general and administrative .............................      8,862      11,079      17,988      21,352
      Depreciation and amortization ...................................     11,153      16,508      22,453      27,626
         Impairment of license and leased license
                       investment .....................................     17,696          --      17,696          --
                                                                          --------    --------    --------    --------
        Total operating expenses ......................................     46,680      38,839      76,421      69,091
                                                                          --------    --------    --------    --------
        Operating loss ................................................    (28,058)    (19,098)    (38,700)    (30,165)
                                                                          --------    --------    --------    --------
Other income (expense):
      Interest income .................................................        675       1,539       1,491       3,271
      Interest expense ................................................     (9,965)     (9,977)    (19,965)    (19,910)
      Equity in losses of affiliates ..................................    (13,283)     (8,272)    (18,659)    (16,574)
      Other expense, net ..............................................        (10)         17         (10)         14
                                                                          --------    --------    --------    --------
        Total other income (expense) ..................................    (22,583)    (16,693)    (37,143)    (33,199)
                                                                          --------    --------    --------    --------
        Loss before income taxes ......................................    (50,641)    (35,791)    (75,843)    (63,364)
Income tax ............................................................         --          --          --          --
                                                                          --------    --------    --------    --------
                  Net loss ............................................   $(50,641)   $(35,791)   $(75,843)   $(63,364)
                                                                          ========    ========    ========    ========
Net loss per common share - basic and diluted .........................   $  (2.57)   $  (1.82)   $  (3.85)   $  (3.23)
                                                                          ========    ========    ========    ========
</TABLE>


     See accompanying notes to condensed consolidated financial statements.




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<PAGE>   4



            HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>


                                                                                         SIX MONTHS ENDED
                                                                                        --------------------
                                                                                          1998        1997
                                                                                        --------    --------
                                                                                             (UNAUDITED)

<S>                                                                                     <C>         <C>      
Cash flows from operating activities:
      Net loss ......................................................................   $(75,843)   $(63,364)
      Adjustments to reconcile net loss to net cash used in operating
      activities:
        Depreciation and amortization ...............................................     22,453      27,626
        Debt accretion and debt issuance cost amortization ..........................      3,270       2,760
        Equity in losses of affiliates ..............................................     18,659      16,574
            Write down of assets due to impairment of undeveloped
                  licenses ..........................................................     17,696          --
        Other .......................................................................         45          --
        Changes in assets and liabilities, net of acquisitions:
            Subscriber receivables ..................................................        364       1,441
            Prepaid expenses and other ..............................................     (1,692)     (1,210)
            Accounts payable, accrued expenses and other liabilities ................      8,784     (12,790)
                                                                                        --------    --------
                 Net cash used in operating activities ..............................     (6,264)    (28,963)
                                                                                        --------    --------

Cash flows from investing activities:
         Proceeds from note receivable ..............................................         --      13,300
      Purchases of systems and equipment ............................................     (6,271)    (21,598)
      Expenditures for license and leased licenses ..................................         --        (448)
         Proceeds from sale of debt securities ......................................      8,731      11,869
      Acquisitions, net of cash acquired ............................................         --      (1,622)
                                                                                        --------    --------
                 Net cash provided by investing activities ..........................      2,460       1,501
                                                                                        --------    --------
Cash flows from financing activities:
      Payments on short-term borrowings and notes payable ...........................       (614)       (680)
      Other .........................................................................         --         (90)
                                                                                        --------    --------
                 Net cash used in financing activities ..............................       (614)       (770)
                                                                                        --------    --------

Net decrease in cash and cash equivalents ...........................................     (4,418)    (28,232)
Cash and cash equivalents at beginning of period ....................................     42,821      79,596
                                                                                        --------    --------
Cash and cash equivalents at end of period ..........................................   $ 38,403    $ 51,364
                                                                                        ========    ========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.




                                      - 4 -

<PAGE>   5



            HEARTLAND WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

                                  JUNE 30, 1998

(1)      General

         (a)      Description of Business

                  The primary business objective of Heartland Wireless
                  Communications, Inc. (the "Company") is to develop, own and
                  operate single family unit ("SFU") and multiple-dwelling unit
                  ("MDU") subscription video businesses and retail high-speed
                  digital Internet access businesses (on a developmental basis
                  in 1998) in markets in which the Company owns or leases
                  sufficient wireless cable channel rights that will allow the
                  Company to best utilize its spectrum and maximize its return
                  on investment. The Company holds wireless cable channel rights
                  primarily in small to mid-size markets located in the central
                  United States. At June 30, 1998, the Company had wireless
                  cable television systems in operation in 57 markets and a
                  developmental Internet access business in one market. The
                  Company currently offers programming packages from DIRECTV,
                  Inc. ("DIRECTV") to certain MDU subscribers in 48 of its 57
                  markets. In addition, in August 1998, the Company will launch
                  its DIRECTV offering to SFU subscribers in 41 markets.

         (b)      Liquidity and Capital Resources

                  Wireless cable television and, to a lesser extent, high-speed
                  Internet access businesses are capital intensive. Since
                  inception, the Company has expended funds to lease or
                  otherwise acquire channel rights and operating subscription
                  video systems in various markets, to construct new
                  subscription video systems and to finance system operating
                  losses. The Company's primary sources of capital have been
                  from subscription fees, the sale of the Company's common
                  stock, debt financing and the sale of wireless cable channel
                  rights that are not part of the Company's strategic plan. The
                  growth of the Company's business requires substantial
                  investment in capital expenditures for SFU and MDU subscriber
                  growth, the development of alternative spectrum usages such as
                  high-speed Internet access, and the launch of additional
                  markets for subscription video and/or Internet access
                  businesses.

                  The Company does not expect to generate sufficient cash flow
                  in 1998 and beyond to implement its business plan and service
                  the Company's existing indebtedness. Accordingly, in January
                  1998, the Company retained the investment banking firm of
                  Wasserstein Perella & Co., Inc. ("Wasserstein") as its
                  financial advisor to assist the Company in analyzing all
                  options available to finance the Company's business plan and
                  recapitalize the Company. Such options may include the sale or
                  exchange of debt or equity securities, borrowings under
                  secured or unsecured loan arrangements, sales of assets
                  including wireless cable systems and channel rights, and/or a
                  recapitalization or restructuring of the Company's debt and/or
                  equity, including converting part or all of the Company's
                  existing indebtedness and related interest obligations into
                  equity of the Company (see Note 3 of Notes to Condensed
                  Consolidated Financial Statements).

                  The Company's ability to implement such options is limited by
                  the indentures governing its $115.0 million in original
                  principal amount of 13% Senior Notes due 2003 (the "13%
                  Notes") and $125.0 million in original principal amount of 14%
                  Senior Notes (the "14% Notes") due 2004 (collectively, the
                  "Senior Notes"), and the agreements governing its issuance of
                  $40.2 million of 9% Convertible Subordinated Discount Notes
                  due 2004 (the "Convertible Notes"). There can be no assurance
                  that the Company will be able to enter into new financing
                  arrangements or a recapitalization or restructuring in a
                  timely manner and on terms satisfactory to the Company.

                  In conjunction with an ongoing evaluation of the Company's
                  capital structure by management and in consultation with the
                  Company's financial advisor, on April 15, 1998, the Company
                  announced that it would not make a semiannual interest payment
                  due on that date of $7.5 million on the 13% Notes. Failure to
                  make this interest payment permits the trustee or the holders
                  of 25% or more in principal amount of the 13% Notes to
                  accelerate payment of the 13% Notes and all unpaid and accrued
                  interest




                                      - 5 -

<PAGE>   6



                  thereon. Acceleration of the 13% Notes permits the trustee and
                  holders of 25% or more in principal amount of the Company's
                  14% Notes to accelerate payment of the 14% Notes and all
                  unpaid and accrued interest thereon. The Company currently
                  does not have sufficient funds available to pay in full the
                  indebtedness outstanding under either the 13% Notes or the 14%
                  Notes in the event that any of such indebtedness is
                  accelerated. At June 30, 1998 the principal amounts
                  outstanding under the Senior Notes had been classified as a
                  current liability in the accompanying condensed consolidated
                  balance sheet in accordance with EITF 86-30. As of August 12,
                  1998, principal and interest under the Senior Notes had not
                  been accelerated.

         (c)      Going Concern

                  The Company's condensed consolidated financial statements have
                  been presented on a going concern basis which contemplates the
                  realization of assets and the satisfaction of liabilities in
                  the normal course of business. The default by the Company
                  under the indentures governing the 13% Notes and the
                  restrictions on the Company's ability to obtain additional
                  financing raise doubt about the continuation of the Company as
                  a going concern without the consummation of an agreement with
                  holders of the Senior Notes to recapitalize the Company or
                  restructure the Senior Notes. The condensed consolidated
                  financial statements do not include any adjustments that might
                  result from the outcome of this uncertainty. Management of the
                  Company believes that at June 30, 1998, the Company had
                  adequate working capital to sustain operations, excluding
                  interest and principal payments on the Senior Notes and
                  Convertible Notes, at least through 1999.

                  The Company believes that its business strategy as discussed
                  herein and in prior public filings should facilitate the
                  consummation of a financial recapitalization or restructuring
                  in a timely manner and on terms acceptable to the Company by
                  demonstrating the long-term value of the Company's assets.
                  However, no assurance can be provided that such
                  recapitalization or restructuring will be consummated in a
                  timely manner and on terms and conditions acceptable to the
                  Company and third parties.

         (d)      Principles of Consolidation

                  The condensed consolidated financial statements include the
                  accounts of the Company and its majority-owned subsidiaries.
                  Significant intercompany balances and transactions between the
                  entities have been eliminated in consolidation. Investments in
                  20% to 50% owned affiliates are accounted for using the equity
                  method and investments less than 20% are accounted for using
                  the cost method.

         (e)      Interim Financial Information

                  In the opinion of management, the accompanying unaudited
                  condensed consolidated financial information of the Company
                  contains all adjustments, consisting only of those of a
                  recurring nature, necessary to present fairly the Company's
                  financial position as of June 30, 1998 and the results of
                  operations for the three and six months ended June 30, 1998
                  and 1997 and cash flows for the six months ended June 30, 1998
                  and 1997. These results are not necessarily indicative of the
                  results to be expected for the full fiscal year. The
                  accompanying financial statements are for interim periods and
                  should be read in conjunction with the audited consolidated
                  financial statements of the Company for the year ended
                  December 31, 1997, included in the Company's Annual Report on
                  Form 10-K for the year ended December 31, 1997.

         (f)      Net Loss Per Common Share

                  In February 1997, the Financial Accounting Standards Board
                  issued Statement of Financial Accounting Standards No. 128,
                  "Earnings per Share" ("SFAS No. 128"). SFAS No. 128 revised
                  the previous calculation methods and presentation of earnings
                  per share under APB 15 and requires that 




                                     - 6 -


<PAGE>   7


                  all prior-period earnings (loss) per share data be restated.
                  The Company adopted SFAS No. 128 in the fourth quarter of 1997
                  as required. In accordance with SFAS No. 128, the Company has
                  presented basic loss per share, computed on the basis of the
                  weighted average number of common shares outstanding during
                  the period, and diluted loss per share, computed on the basis
                  of the weighted average number of common shares and all
                  dilutive potential common shares outstanding during the
                  period. All prior period loss per share amounts have been
                  restated in accordance with SFAS 128.

                  Net loss per basic and diluted common share is based on the
                  net loss applicable to the weighted average number of common
                  shares outstanding of approximately 19,704,000 and 19,645,000
                  for the three-month periods ended June 30, 1998 and 1997,
                  respectively, and 19,694,000 and 19,615,000 for the six months
                  ended June 30, 1998 and 1997, respectively. The potentially
                  dilutive effect of the Company's outstanding stock options and
                  warrants has not been considered in the computation of diluted
                  net loss per common share since their effect would be
                  antidilutive.

(2)      Impairment of Long-Lived Assets

         Under Statement of Financial Accounting Standards No. 121 ("SFAS No.
         121"), companies are not required to actively search for impairment of
         assets that are employed in the business or to perform an
         asset-by-asset analysis to determine if impairment exists. A review is
         required only when events or circumstances indicate that an impairment
         might exist. At that point, expected future undiscounted cash flows
         from the use of each asset must be estimated and compared with its book
         value to determine if impairment exists. Any impairment loss is then
         computed as the amount by which the asset's book value exceeds its fair
         value.

         In the second quarter ended June 30, 1998, the Company reviewed the
         book value of certain assets associated with certain undeveloped
         markets and determined that cash flows from operations currently would
         not be adequate to fund the capital outlay required to build out such
         markets and, because of the Company's recent default on its interest
         payment due on the 13% Notes, outside financing for this purpose may
         not be readily available prior to consummating a financial
         recapitalization or restructuring. Therefore, in accordance with SFAS
         No. 121, the wireless cable channel licenses and leases in these
         undeveloped markets were individually evaluated and written down to
         fair value.

         As a result, the Company recorded a $17.7 million asset impairment
         charge in the second quarter of 1998 in order to reflect its
         undeveloped wireless cable channel licenses and leases at estimated
         fair value. This charge related to licenses and leases in 34 of the
         Company's non-operating markets and was recorded after considering,
         among other things, recent market transactions of a similar nature
         within the industry, the availability of willing buyers for channel
         licenses and leases in each undeveloped market, and the present value
         of cash flows projected to be generated if the markets were developed.

         The Company will continue to review these licenses and leases for
         impairment as well as for possible future development of its
         subscription video and Internet lines of business if its financial
         recapitalization or restructuring is successful and capital funds for
         build-out become available.

         Additionally, based on the current depressed market condition of the
         wireless cable industry and the continuing losses of CS Wireless
         Systems, Inc. ("CS Wireless"), management re-evaluated the goodwill
         (excess basis over the Company's equity in the underlying net assets)
         associated with its investment in CS Wireless. Accordingly, during the
         second quarter ended June 30, 1998, the Company wrote off $6.8 million
         of excess basis in its 36% equity interest in CS Wireless. The loss is
         reflected in equity in losses of affiliates on the Company's condensed
         consolidated statement of operations and as a reduction of investments
         in affiliates on the Company's condensed consolidated balance sheet.




                                      - 7 -

<PAGE>   8



(3)      Financial Recapitalization/Restructuring

         As noted above, the Company has retained Wasserstein as its financial
         advisor to assist the Company in evaluating all options available to
         finance the Company's business plan and recapitalize the Company. In
         June 1998, an unofficial ad hoc committee purporting to represent at
         least 66 2/3% of the holders of the Senior Notes (the "Ad Hoc
         Committee") hired Jefferies & Co., Inc. ("Jefferies") as the Ad Hoc
         Committee's financial advisor. The Company and Wasserstein have had
         preliminary discussions with Jefferies regarding specific
         recapitalization proposals. The Company continues to pursue
         recapitalization and restructuring alternatives with all debt holders
         on a consensual basis. There can be no assurance, however, that any
         such alternatives will be acceptable to any or all such parties.

         The Company may not be able to obtain the consents necessary from the
         holders of the Senior Notes for a consensual, out-of-court
         restructuring. In this event, if the Company believes that it is able
         to obtain the requisite votes from debt holders supporting a
         "prenegotiated" or "prepackaged" plan of reorganization (the "Plan")
         that is acceptable to the Company, then the Company intends to formally
         solicit consents from the holders of the Senior Notes, Convertible
         Notes and certain other impaired creditors to approve such a Plan, file
         a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code, and
         seek confirmation of the Plan as promptly thereafter as possible. There
         can be no assurance that, if filed, such Plan will be approved by any
         creditors or confirmed in any formal proceeding.

(4)      Comprehensive Income (Loss)

         In June 1997, Statement of Financial Accounting Standards No. 130,
         "Reporting Comprehensive Income," ("SFAS No. 130") was issued. SFAS No.
         130 establishes standards for reporting and displaying comprehensive
         income and its components in an annual financial statement that is
         displayed with the same prominence as other annual financial
         statements. Reclassification of financial statements for earlier
         periods, provided for comparative purposes, is required. The statement
         also requires the accumulated balance of other comprehensive income to
         be displayed separately from retained earnings and additional paid-in
         capital in the equity section of the statement of financial position.
         SFAS No. 130 is effective for fiscal years beginning after December 15,
         1997. Comprehensive income (loss) for the Company does not differ from
         net income (loss). Comprehensive income (loss) and net loss for the six
         months ended June 30, 1998 and 1997 was $75.8 million and $63.4
         million, respectively.

(5)      Contingencies

         On July 15, 1998, a purported class action lawsuit was filed in State
         District Court in Kleberg County, Texas, styled Richard H. Thompson, et
         al. v. Heartland Wireless Communications, Inc., David E. Webb and John
         R. Bailey (98-371-d) (the "Thompson Suit"). The Thompson Suit alleges
         violations of the Texas Securities Act and Texas common law. The
         plaintiff alleges that defendants misrepresented or failed to disclose
         material facts about the business prospects and financial condition of
         the Company, and overstated revenues, consolidated earnings before
         interest, taxes, depreciation and amortization ("EBITDA") and
         subscriber numbers. The plaintiff seeks to certify a class to represent
         all persons who acquired the securities of the Company during the
         period from November 15, 1995 through March 20, 1997 (the "Class
         Period"), including all persons who purchased or acquired securities
         that were offered or sold by defendants during the Class Period. The
         plaintiff seeks money damages, interest, attorneys' fees and costs, as
         well as equitable and/or injunctive relief with respect to any proceeds
         derived from defendants' stock sales.

         On May 27, 1998, a purported class action lawsuit was filed in State
         District Court in Brooks County, Texas, styled Azalia Garcia, et al. v.
         Heartland Wireless Communications, Inc. d/b/a Heartland Cable
         Television



                                     - 8 -

<PAGE>   9


         (98-60898-1) (the "Garcia Suit"). The Garcia Suit alleges that the
         late fees charged by the Company are not reasonably related to the
         costs incurred by the Company as a result of late payment of accounts.
         The plaintiff seeks to certify a class to represent all persons
         currently receiving cable service from the Company or who have been
         charged a late fee in the past by the Company. The plaintiff seeks a
         declaration that any contractual provisions for the Company's late fees
         are void or usurious, and seeks money damages, interest, attorneys'
         fees and costs.

         The Company believes it has meritorious defenses to both of the above
         lawsuits and is vigorously defending these actions.

         The Company is a party to various other claims, legal actions and
         complaints arising in the ordinary course of business. Management
         believes that the disposition of these other matters will not have a
         material adverse effect on the Company's consolidated financial
         condition or results of operations.

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

This discussion and analysis should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto.

OVERVIEW

The Company develops, owns and operates wireless cable television systems and
channel rights in small to mid-size markets in the central United States. The
Company currently offers its subscribers local off-air VHF/UHF channels, as well
as premium and basic cable television programming channels such as HBO, HBO2,
Cinemax, Showtime, Disney, ESPN, CNN, USA, WGN, WTBS, TNT, Nickelodeon, Turner
Classic Movies, The Weather Channel, Fox Sports, Discovery, the Nashville
Network, A&E and other popular cable television networks.

The Company currently offers programming packages from DIRECTV to certain MDU
subscribers in 48 of its 57 markets. In addition, in August 1998, the Company
will launch its DIRECTV offering to SFU subscribers in 41 markets. In June 1998,
the Company launched a developmental high-speed Internet access business in
Sherman, Texas and, subject to the results in the Sherman market, anticipates
launching Internet services in up to three other existing markets by the end of
1998. At June 30, 1998, the Company had wireless cable channel rights in 90
markets, including 57 markets with subscription video systems in operation,
providing service to approximately 170,000 subscribers. In addition, the Company
owns approximately 20% of the outstanding common stock of Wireless One, Inc.
("Wireless One") and approximately 36% of the outstanding common stock of CS
Wireless.

FORWARD LOOKING STATEMENTS

In addition to the matters noted elsewhere in this Quarterly Report on Form
10-Q, the statements contained in this report relating to the Company's
operating results and plans and objectives of management for future operations,
including plans or objectives relating to the Company's business strategy,
financing and financial recapitalization and restructuring needs, are forward
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934, as amended. Such statements are based on an assessment of a variety
of factors, contingencies and uncertainties deemed relevant by management,
including (i) the Company's ability to recapitalize and/or restructure its
existing indebtedness and access additional capital to finance its current
business plan, (ii) business and economic conditions in the Company's existing
markets, (iii) the Company's ability to implement a successful marketing plan
and competitive price structure to produce subscriber growth, (iv) the
successful implementation and launch of the Company's MDU and SFU alliances


                                      - 9 -

<PAGE>   10



with DIRECTV, (v) regulatory and interference issues, including the grant of
two-way transmission authority and pending applications for new licenses or for
modification of existing licenses and the grant of applications for new licenses
and license modification applications that have not yet been filed with the
Federal Communications Commission ("FCC"), (vi) the successful launch and
marketing of the Company's high-speed Internet access business, and (vii)
competitive products and services, as well as those matters discussed
specifically elsewhere herein. Consequently, the actual future results realized
by the Company could differ materially from the statements made herein.
Investors are cautioned not to place undue reliance on the forward looking
statements made in this report.

GOING CONCERN; FINANCIAL RECAPITALIZATION/RESTRUCTURING

In conjunction with an ongoing evaluation of the Company's capital structure by
management and in consultation with the Company's financial advisor, on April
15, 1998, the Company announced that it would not make a semiannual interest
payment due on that date of $7.5 million on the 13% Notes. Failure to make this
interest payment permits the trustee or the holders of 25% or more in principal
amount of the 13% Notes to accelerate payment of the 13% Notes and all unpaid
and accrued interest thereon. Acceleration of the 13% Notes permits the trustee
and holders of 25% or more in principal amount of the Company's 14% Notes to
accelerate payment of the 14% Notes and all unpaid and accrued interest thereon.
The Company currently does not have sufficient funds available to pay in full
the indebtedness outstanding under either the 13% Notes or the 14% Notes in the
event that any of such indebtedness is accelerated. Accordingly, at June 30,
1998 the principal amounts outstanding under the Senior Notes have been
classified as a current liability in accordance with EITF 86-30. As of August
12, 1998, principal and interest under the Senior Notes had not been
accelerated.

The default by the Company under the indentures governing the 13% Notes and the
restrictions on the Company's ability to obtain additional financing raise doubt
about the continuation of the Company as a going concern without the
consummation of an agreement with holders of the Senior Notes to recapitalize
the Company or restructure the Senior Notes.

The Company continues to retain Wasserstein as its financial advisor to assist
the Company in evaluating all options available to finance the Company's
business plan and recapitalize the Company. The Company and Wasserstein have had
preliminary discussions with the Ad Hoc Committee's financial advisor regarding
specific recapitalization and restructuring proposals. The Company continues to
pursue recapitalization and restructuring alternatives with all debt holders on
a consensual basis. There can be no assurance, however, that any such
alternatives will be acceptable to any or all such parties.

The Company may not be able to obtain the consents necessary from the holders of
the Senior Notes for a consensual, out-of-court restructuring. In this event, if
the Company believes that it is able to obtain the requisite votes from the debt
holders supporting a "prenegotiated" or "prepackaged" plan of reorganization
(the "Plan") that is acceptable to the Company, then the Company intends to
formally solicit consents from the holders of the Senior Notes, Convertible
Notes and certain other impaired creditors to approve such a Plan, file a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code, and seek
confirmation of the Plan as promptly thereafter as possible. There can be no
assurance that, if filed, such Plan will be approved by any creditors or 
confirmed in any formal proceeding.

The Company believes that its business strategy as discussed herein and in prior
public filings should help the Company consummate a financial recapitalization
or restructuring in a timely manner and on terms acceptable to the Company by
demonstrating the long-term value of the Company's assets. However, there can be
no assurance that such recapitalization or restructuring will be consummated.




                                     - 10 -

<PAGE>   11



LIQUIDITY AND CAPITAL RESOURCES

Wireless cable television and, to a lesser extent, high-speed Internet access
businesses are capital intensive. Since inception, the Company has expended
funds to lease or otherwise acquire channel rights and operating subscription
video systems in various markets, to construct new subscription video systems
and to finance system operating losses. The Company's primary sources of capital
have been from subscription fees, the sale of the Company's common stock, debt
financing and the sale of wireless cable rights that are not part of the
Company's strategic plan. The growth of the Company's business requires
substantial investment in capital expenditures for SFU and MDU subscriber
growth, the development of alternative spectrum usages such as high-speed
Internet access, and the launch of additional markets for subscription video
and/or Internet access businesses.

The Company estimates that a launch of a wireless cable analog video system in
a typical market will involve the initial expenditure of approximately $820,000
to $1.3 million for transmission equipment and tower construction, depending
upon the type and sophistication of the equipment and whether the Company is
required to construct a transmission tower. In addition, installation costs for
each SFU subscriber are approximately $465 for boxed technology and
approximately $400 for boxless technology. These installation costs include
expenditures for equipment, labor, overhead charges and direct commissions. The
Company expects that installation costs for each new SFU subscriber who
receives the DIRECTV programming service will be approximately $390 to $275,
depending on whether the installation is in a boxed or boxless market. At June
30, 1998, the Company had 26 and 31 boxed and boxless systems, respectively.
The Company believes the average incremental installation costs will continue
to decrease as (1) subscribers are added in boxless systems and (2) combination
DIRECTV subscribers are added.

The Company converted two operating systems from a boxed to a boxless
technology in 1998 and plans to convert additional operating systems to realize
future cost savings. The Company is able to use boxed inventory removed from
converted markets to equip new subscribers in other boxed technology markets.
Other launch costs include the cost of securing adequate space for marketing
and warehouse facilities, as well as costs related to employees. The Company
estimates the launch of a developmental Internet access business will require
initial incremental capital expenditures of approximately $250,000 per market.
Operating losses are likely to be incurred by both a video and Internet access
business during the start-up period. Subject to the consummation of a financial
recapitalization or restructuring, the Company has determined to delay the
launch of any new wireless cable television markets temporarily.

Cash used in operations of the Company was $6.3 million for the six months ended
June 30, 1998, compared to $29.0 million during the first half of 1997. The
increase in cash from operations during 1998 was primarily due to lower
programming costs as a result of fewer subscribers and lower SG&A expenses
related to labor savings and efficiencies at the market level, as well as
nonpayment in the current year of accrued interest on the 13% Notes.

Cash provided by investing activities was $2.5 million during the first six
months of 1998, compared to $1.5 million in the same period last year. Cash
provided by/used in investing activities principally relates to the acquisition
and installation of subscriber receive-site equipment, the upgrade of
transmission equipment in certain markets and the acquisition of wireless cable
channel rights and operating systems, partially offset by the sale of wireless
cable channel rights that are not a part of the Company's strategic plan.
During the six months ended June 30, 1998, cash used in investing activities
included the sale of debt securities held in the Company's escrow account for
payment of interest on the 14% Notes, purchases of subscriber equipment and the
upgrade of transmission equipment in certain markets. Cash provided by
investing activities during the first half of 1997 included receipt of $13.3
million in cash from CS Wireless for partial payment on a note receivable and
sales of debt securities totaling $11.9 million, offset by the Company's
acquisition of operating systems in Woodward and Watonga, Oklahoma for $1.6
million.

Net cash used in financing activities was $614,000 for the six months ended
June 30, 1998, compared to $770,000 during the same period of 1997.
Expenditures in both periods primarily relate to principal payments on
obligations related to capital leases and various prior period acquisitions.


                                     - 11 -

<PAGE>   12



At June 30, 1998, the Company had approximately $38.4 million of cash and cash
equivalents, and $1.4 million of restricted cash.

FUTURE CASH REQUIREMENTS

As of June 30, 1998 the Company had $240.0 million principal amount of Senior
Notes outstanding, approximately $55.0 million in accreted principal amount of
Convertible Notes outstanding and approximately $15.8 million principal amount
of installment notes outstanding payable to the FCC for the Company's basic
trading area ("BTA") authorizations (net of BTA lease payments from CS
Wireless). In April 1997, the Company disbursed all of the remaining funds in
the escrow account established in connection with the indentures governing the
13% Notes and in April 1998 the Company disbursed all of the funds in the escrow
account established in connection with the indenture governing the 14% Notes.
Cash interest obligations on the 13% Notes and the 14% Notes total approximately
$16.2 million every six months or $32.4 million per year (excluding any interest
payable as a result of delinquent interest payments). Excluding the principal
amounts and accrued but unpaid interest on the Senior Notes, the Company is
obligated to pay approximately $988,000 in principal and interest on installment
notes for its basic trading areas or BTAs, and $546,000 in operating leases and
other notes payable for the third and fourth quarters in the fiscal year ending
December 31, 1998. As of June 30, 1998, the Company had outstanding trade
payables of approximately $1.1 million. In November 1998, the Company will be
required to make quarterly principal payments (in addition to interest) on its
debt incurred in connection with the 1996 BTA auction, with amortized payments
ranging from $250,000 in November 1998 to $525,000 in May 2006 (net of BTA lease
payments from CS Wireless). In November 1999, the Company will be required to
make its first semiannual cash interest payment of approximately $2.8 million on
the Convertible Notes.

As discussed above, pending the outcome of its recapitalization and financing
efforts, the Company temporarily has suspended new wireless cable television
system launches. The Company remains committed to its long-term business plan,
subject to the recapitalization and financing issues discussed herein. This
business plan consists of (1) achieving moderate SFU subscriber growth through
traditional analog video service in selected markets, (2) pursuing SFU and MDU
subscriber and revenue growth through cooperative marketing alliances with
DIRECTV, (3) developing and testing Internet access service to small and
mid-size businesses in several markets, (4) launching several new markets that
offer MDU, Internet and SFU subscriber growth opportunities, and (5) pursuing
recapitalization and financing alternatives to allow the Company to carry out
this business plan.

Despite the Company's efforts to conserve capital and the improvement in its
EBITDA during the second half of 1997 and the first half of 1998, the Company
does not expect to generate sufficient cash flow in 1998 and beyond to implement
its business strategy and service the Company's existing indebtedness. As a
result, the implementation of the above-described business strategy is subject
to and dependent upon obtaining additional capital and recapitalizing or
restructuring the Company's current debt on terms and conditions acceptable to
the Company and in a timely manner. This may include the sale or exchange of
debt or equity securities, borrowings under secured or unsecured loan
arrangements, sales of assets including wireless cable systems and channel
rights, and/or a recapitalization or restructuring of the Company's debt and/or
equity, including converting part or all of the Company's existing indebtedness
and related interest obligations into equity of the Company.

The Company's ability to implement such options is limited by the indentures
governing the Senior Notes and the agreements governing the Convertible Notes.
There can be no assurance that the Company will be able to enter into new
financing arrangements or a recapitalization or restructuring in a timely manner
and on terms satisfactory to the Company that will enable the Company to
implement the above-described business strategy. Management of the Company
believes that at June 30, 1998, the Company had adequate working capital to
sustain operations, excluding interest and principal payments on the Senior
Notes and Convertible Notes, at least through 1999.



                                     - 12 -

<PAGE>   13



RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 1997

Revenues; Subscribers. The Company's revenues consist of monthly fees paid by
subscribers for basic programming, premium programming, program guides,
equipment rental and other miscellaneous fees. The Company's revenues for the
second quarter of 1998 were $18.6 million, compared to $19.8 million for the
second quarter of 1997. Revenues for the six months ended June 30, 1998 were
$37.7 million compared to $38.9 million for the same period last year. Revenues
decreased for both periods primarily due to a decrease in average subscribers
from 200,500 for the quarter ended June 30, 1997 to 172,630 for the quarter
ended June 30, 1998, and from 196,500 for the six months ended June 30, 1997 to
171,150 for the same period of 1998. The decrease in average subscribers is
primarily due to (i) the Company's inability to hire and train a qualified sales
force as quickly as it had anticipated, (ii) the delayed launch of the Company's
marketing plan for its combined DIRECTV offerings until the third quarter of
1998, (iii) an increase as of January 1, 1998 in the Company's equivalent basic
unit or "EBU" conversion rate for calculating MDU subscribers (discussed in the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998),
(iv) the transfer of one operating system (and its associated revenues) to CS
Wireless in December 1997 and (v) stricter credit policies for approving new
customers.

As noted above, the number of subscribers has decreased since the second quarter
of 1997. Although the Company has successfully attracted higher quality
subscribers, as measured by the Company's decreasing bad debt expense, the
overall number of subscribers has declined and has resulted in a corresponding
decrease in revenue. The Company recognizes that long-term subscriber growth is
critical for sustainable EBITDA growth and the ongoing viability of its
subscription video business. Although there can be no assurance that such
long-term growth will be achieved, the Company believes that with its enhanced
programming offering from DIRECTV, and continuing improvement in other
operational areas, it can achieve and maintain such long-term subscriber growth.
Additionally, although the number of subscribers of its subscription video
business has decreased since the second quarter of 1997, average recurring
revenue per subscriber increased 7% for the second quarter ended June 30, 1998
to $34.04 from $31.84 for the same period last year and 9% for the six months
ended June 30, 1998 to $34.06 from $31.19 for the same period last year. This
increase reflects overall higher average subscription rates, as lower priced
packages are replaced with upgraded offerings.

As discussed above, the Company will launch its SFU DIRECTV product in 41
markets in August 1998. This launch involves reorganizing individual market
channel line-ups to accommodate and avoid redundancies with DIRECTV's
programming line-ups. In the short-term, the number of subscribers in these
markets may decline and cause a temporary increase in the Company's churn rate,
as some existing subscribers may not wish to purchase DIRECTV services and might
be dissatisfied with the revised channel lineups that the Company will provide
in those markets. The Company believes that any temporary decline caused by this
reorganization will be more than offset by new subscribers and additional
revenues that the Company will generate through its alliance with DIRECTV.

Systems Operations. Systems operations expenses include programming costs,
channel lease payments, labor and overhead, costs of service calls and churn,
transmitter site and tower rentals, cost of program guides and certain repairs
and maintenance expenditures. Programming costs (with the exception of minimum
payments), cost of program guides and channel lease payments (with the exception
of certain fixed payments) are variable expenses based on the number of
subscribers. Systems operations expense was $9.0 million for the second quarter
of 1998, versus $11.3 million for the second quarter of 1997. As a percentage of
revenues, systems operations expense was 48.2% for the second quarter of 1998,
compared to 57.0% for the second quarter of 1997. For the six months ended June
30, 1998, systems operations expense was $18.3 million or 48% of revenue,
compared to $20.1 million or 52% of revenue for the first six months of 1997.
The decrease in systems operations expense was primarily due to lower
programming costs as a result of (i) fewer subscribers and (ii) increasing the
Company's EBU conversion rate which resulted in fewer MDU subscribers. This
decrease was slightly offset by programming rate increases from certain
providers. In addition, the Company experienced higher service call expense
during the second quarter and first six months of 1997 due to installation
corrections at certain subscriber households and an increase in expenses related
to the recovery of equipment from disconnected subscribers.



                                     - 13 -

<PAGE>   14



Selling, General and Administrative ("SG&A"). SG&A expense for the second
quarter of 1998 decreased 20% to $8.9 million from $11.1 million during the same
period in 1997. As a percentage of revenues, SG&A was 47.6% in the second
quarter of 1998 compared with 56.1% for the second quarter of 1997. SG&A expense
for the first six months of 1998 decreased 15.8% to $18 million from $21.4
million for the same period last year. As a percentage of revenues, SG&A was 48%
for the first half of 1998 compared to 55% for the same period last year. SG&A
decreased over the periods presented due to lower bad debt expense resulting
from improved credit screening and collection procedures and as a result of
labor savings and efficiencies realized from consolidation of management and
staff in certain markets.

Depreciation and Amortization. Depreciation and amortization expense includes
depreciation of systems and equipment, amortization of license and leased
license investment and the excess of cost over fair value of net assets
acquired. The Company's policy is to capitalize the excess of direct costs of
subscriber installations over installation fees. These direct costs include
reception materials and equipment on subscriber premises, installation labor and
direct commissions. These direct costs are capitalized as systems and equipment
in the accompanying condensed consolidated balance sheet. Depreciation and
amortization expense was $11.2 million and $22.5 million for the quarter and six
months ended June 30, 1998, respectively, compared to $16.5 million and $27.6
million for the quarter and six months ended June 30, 1997, respectively. The
decrease in depreciation and amortization expense primarily was due to $8
million in write-offs of subscriber equipment during the third quarter of 1997
related to obsolete equipment and disconnected equipment not recovered from
subscribers' homes. This decrease was slightly offset by a change in the
amortization period of the nonrecoverable portion of subscriber installation
costs from four years to three years in the third quarter of 1997 and additional
amortization expense on the costs of BTA channel rights that began in the fourth
quarter of 1997.

Impairment of Long-Lived Assets. Under SFAS No. 121 companies are not required
to actively search for impairment of assets that are employed in the business or
to perform an asset-by-asset analysis to determine if impairment exists. A
review is required only when events or circumstances indicate that an impairment
might exist. At that point, expected future undiscounted cash flows from the use
of each asset must be estimated and compared with its book value to determine if
impairment exists. Any impairment loss is then computed as the amount by which
the asset's book value exceeds its fair value.

In the second quarter of 1998, the Company reviewed the book value of certain 
assets associated with certain undeveloped markets and determined that cash
flows from operations currently would not be adequate to fund the capital outlay
required to build out such markets and, because of the Company's recent default
on its interest payment due on the 13% Notes, outside financing for this purpose
may not be readily available prior to consummating financial recapitalization or
restructuring. Therefore, in accordance with SFAS No. 121, the wireless cable
channel licenses and leases in these undeveloped markets were individually
evaluated and written down to fair value.

As a result, the Company recorded a $17.7 million asset impairment charge in the
second quarter of 1998 in order to reflect its undeveloped wireless cable
channel licenses and leases at estimated fair value. This charge related to
licenses and leases in 34 of the Company's non-operating markets and was
recorded after considering, among other things, recent market transactions of a
similar nature within the industry, the availability of willing buyers for
channel licenses and leases in each undeveloped market, and the discounted
future cash flows projected to be generated if the markets were developed.

The Company will continue to review these licenses and leases for impairment as
well as for possible future development of its subscription video and Internet
lines of business if its financial recapitalization or restructuring is
successful and capital funds for build-out become available.

Additionally, based on the current depressed market condition of the wireless
cable industry and the continuing losses of CS Wireless, management re-evaluated
the goodwill associated with its investment in CS Wireless. Accordingly, during
the second quarter ended June 30, 1998, the Company wrote off $6.8 million of
excess basis in its 36% equity interest in CS Wireless.


                                     - 14 -

<PAGE>   15



Operating Loss. The Company generated operating losses of $25.2 million for the
second quarter of 1998, compared to $19.1 million for the second quarter of
1997. Operating losses for the six months ended June 30, 1998 were $35.9 million
compared to $30.2 million for the same period last year.

Excluding the write-down of the Company's undeveloped licenses and leases,
operating losses improved by 46% for the quarter and 30% for the six month
period ended June 30, 1998. EBITDA was $791,000 for the second quarter of 1998,
compared to negative $2.6 million in the second quarter of 1997. EBITDA for the
six months ended June 30, 1998 was $1.5 million compared to negative $2.5
million for the six months ended June 30, 1997. EBITDA is presented because it
is a widely accepted financial indicator of a company's ability to service
and/or incur indebtedness. However, EBITDA is not a financial measure determined
under generally accepted accounting principles and should not be considered as
an alternative to net income as a measure of operating results or as an
alternative to cash flows as a measure of funds available for discretionary or
other liquidity purposes.

In order to fully utilize its current resources and increase subscriber growth,
the Company expects that it will be required to continue to increase advertising
expenditures which may negatively impact EBITDA in the short term.

Interest Income. Interest income was $675,000 and $1.5 million for the quarter
and six months ended June 30, 1998, compared to $1.5 million and $3.3 million
for the quarter and six months ended June 30, 1997. The decrease in interest
income is due to higher interest earnings during 1997 on larger escrowed
balances segregated for the payment of interest on the Senior Notes and higher
interest earnings on a note receivable that was partially repaid during the
second and third quarters of 1997.

Interest Expense. Interest expense was $10.0 million for the second quarter of
1998 and 1997 and $20.0 million for the six months ended June 30, 1998, compared
to $19.9 million for the six months ended June 30, 1997. Interest expense
remained stable even though average borrowings for the six months ended June 30,
1998 increased approximately $5.0 million compared to the same prior year
period. However, this increase was due to the accretion of interest to the
principal balance of the Company's Convertible Notes.

Equity in Losses of Affiliates. The Company owns approximately 20% of the
outstanding common stock of Wireless One and approximately 36% of the
outstanding common stock of CS Wireless. Equity in losses of affiliates was
$13.3 million and $18.7 million for the quarter and six months ended June 30,
1998, respectively, compared to $8.3 million and $16.6 million for the same
periods of 1997, respectively. During the second quarter of 1998, the Company
wrote off $6.8 million of goodwill representing its basis in excess of its
equity in the net assets of CS Wireless, based on the depressed condition of the
wireless cable industry and CS Wireless' continuing losses. Excluding this
write-off, losses from affiliates for the quarter and six months ended June 30,
1998 were lower than the same periods last year due to the exclusion of losses
from Wireless One in 1998 following the Company's write-down of its investment
in Wireless One to zero in November 1997.

Net Loss. The Company has recorded net losses since inception. The Company
incurred net losses of $50.6 million, or $2.57 per basic and diluted common
share, during the second quarter of 1998, versus $35.8 million, or $1.82 per
basic and diluted common share, during the second quarter of 1997. During the
six months ended June 30, 1998, the Company incurred net losses of $75.8 million
or $3.85 per basic and diluted common share, compared to $63.4 million or $3.23
per basic and diluted common share for the six months ended June 30, 1997. As
discussed above, the increase in net losses is primarily due to the write-down
of $17.7 million of the Company's undeveloped licenses and $6.8 million of
goodwill associated with the Company's investment in CS Wireless during the
second quarter of 1998. Excluding these write-downs, net losses improved over
the periods presented due to decreases in systems operations expense, SG&A and
depreciation and amortization expense.




                                     - 15 -

<PAGE>   16



BALANCE SHEET

Subscriber Receivables. Subscriber receivables decreased from $2.2 million at
December 31, 1997 to $1.8 million at June 30, 1998 as a result of stricter
credit screening policies and improved collections procedures. The Company's
monthly churn rate also has declined from an average of 4.6% at December 31,
1997 to 3.5% in the first quarter of 1998 to 3.2% in the second quarter of 1998.

Investments in Affiliates. As discussed above, based on the depressed valuations
in the wireless cable industry and CS Wireless' continuing losses, the Company
wrote-off $6.8 million of excess basis in its 36% equity interest in CS Wireless
during the second quarter ended June 30, 1998.

Current Liabilities. Accounts payable and accrued expenses increased from $17.4
million at December 31, 1997 to $26.2 million at June 30, 1998. This increase
was primarily due to additions to accrued interest on the Company's Senior Notes
as a result of the Company's election in April 1998 not to make an interest
payment of approximately $7.5 million on the 13% Notes. At June 30, 1998,
accrued interest payable amounted to approximately $14.4 million. In addition,
as a result of the Company's decision not to make its semi-annual interest
payment on its 13% Notes and the noteholders' right to accelerate all principal
amounts due under the 13% and 14% Notes, these principal balances have been
reflected as a current liability on the Company's condensed consolidated balance
sheet as of June 30, 1998.

THE YEAR 2000

The Company is aware of the issues associated with the programming code in
existing computer systems as the millennium (Year 2000) approaches. The Year
2000 issue is the result of computer programs being written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have time-sensitive software may recognize a date using "00" as
1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruptions of operations including, among other things,
a temporary inability to process transactions, send invoices, transmit
programming or engage in similar normal business activities.

The Company is utilizing both internal and external resources to identify,
correct or reprogram, and test its systems for the Year 2000 compliance. The
Company anticipates that all reprogramming efforts will be complete by early
1999, which the Company believes will allow adequate time for testing and
implementation before January 1, 2000. To date, confirmations have been received
from the Company's primary information processing vendors that plans are being
developed to address the processing of transactions in the Year 2000. However,
the Company is uncertain of the expense associated with the Year 2000 compliance
and related potential effect on the Company's results of operations.

FUTURE OPERATING RESULTS

The Company's future revenues and profitability are difficult to predict due to
a variety of risks and uncertainties, including those described under "Forward
Looking Statements" above.

The rate of future growth of the Company's subscription video and other
subscribers cannot be estimated with precision or certainty. Successful
implementation of the Company's business strategy, the Company's ability to
obtain timely financing on acceptable terms and the recapitalization of the
Company would have a significant impact on the Company's operating and financial
performance in 1998 and beyond. In addition, the Company cannot quantify the
potential impact on its 1998 financial performance of the implementation of its
business strategy.



                                     - 16 -

<PAGE>   17



Because of the foregoing uncertainties affecting 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 common stock and debt.

RECENTLY ISSUED ACCOUNTING PRINCIPLES

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("SFAS No.
131"). SFAS No. 131 is effective for fiscal years beginning after December 31,
1997. This statement establishes standards for the way that public companies
report information about segments in annual and interim financial statements.
The adoption of SFAS No. 131 is not expected to have a material impact on the
Company's consolidated financial statements and related disclosures.

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On July 15, 1998, a purported class action lawsuit was filed in State District
Court in Kleberg County, Texas, styled Richard H. Thompson, et al. v. Heartland
Wireless Communications, Inc., David E. Webb and John R. Bailey (98-371-d). The
Thompson Suit alleges violations of the Texas Securities Act and Texas common
law. The plaintiff alleges that defendants misrepresented or failed to disclose
material facts about the business prospects and financial condition of the
Company, and overstated revenues, EBITDA and subscriber numbers. The plaintiff
seeks to certify a class to represent all persons who acquired the securities of
the Company during the period from November 15, 1995 through March 20, 1997,
including all persons who purchased or acquired securities that were offered or
sold by defendants during the Class Period. The plaintiff seeks money damages,
interest, attorneys' fees and costs, as well as equitable and/or injunctive
relief with respect to any proceeds derived from defendants' stock sales.

On May 27, 1998, a purported class action lawsuit was filed in State District
Court in Brooks County, Texas, styled Azalia Garcia, et al. v. Heartland
Wireless Communications, Inc. d/b/a Heartland Cable Television (98-60898-1). The
Garcia Suit alleges that the late fees charged by the Company are not reasonably
related to the costs incurred by the Company as a result of late payment of
accounts. The plaintiff seeks to certify a class to represent all persons
currently receiving cable service from the Company or who have been charged a
late fee in the past by the Company. The plaintiff seeks a declaration that any
contractual provisions for the Company's late fees are void or usurious, and
seeks money damages, interest, attorneys' fees and costs.

The Company believes it has meritorious defenses to both of the above lawsuits
and is vigorously defending these actions.

The Company is a party to various other claims, legal actions and complaints
arising in the ordinary course of business. Management believes that the
disposition of these other matters will not have a material adverse effect on
the Company's consolidated financial condition or results of operations.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Annual Meeting of Stockholders of the Company ("Annual Meeting") was held on
June 12, 1998. Each of the following persons, who constituted all of the
Company's nominees for director, were elected at the Annual Meeting to serve on
the Board of Directors of the Company:



                                     - 17 -

<PAGE>   18

<TABLE>
<CAPTION>


                                          Votes            Votes         Broker
                                           For            Withheld      Non-Votes
                                        ----------        --------      ---------
<S>                                     <C>               <C>          <C>
Jack R. Crosby                          17,424,258        235,885          0
J.R. Holland, Jr.                       17,525,170        134,973          0
Carroll D. McHenry                      17,528,395        131,748          0
Terry S. Parker                         17,526,170        133,973          0
John A. Sprague                         17,527,895        132,248          0
L. Allen Wheeler                        17,521,169        138,974          0
</TABLE>


At the Annual Meeting, the stockholders also voted to ratify the selection of
KPMG Peat Marwick LLP as independent auditors for the Company for the fiscal
year ending December 31, 1998:

<TABLE>
<CAPTION>


                                          Votes           Votes                          Broker
                                           For           Against          Abstained     Non-Votes
                                        ----------       -------          ---------     ----------
<S>                                                     <C>              <C>            <C>
                                        17,474,487        59,115           126,541           0
</TABLE>


ITEM 5.  OTHER INFORMATION

As noted in the Company's Quarterly Report on Form 10-Q for the quarter ended
March 30, 1998, The Nasdaq Stock Market, Inc. ("Nasdaq") has notified the
Company that it has failed to maintain a closing bid price of at least $1.00 for
30 consecutive trading days in violation of Nasdaq's Marketplace Rule
4450(a)(5). In addition, the Company was notified on July 6, 1998 that it has
failed to meet the net tangible asset requirement of $4 million in violation of
Nasdaq's Marketplace Rule 4450(a)(3). On July 17, 1998, the Company requested a
waiver of compliance with Marketplace Rule 4450(a)(5) and a hearing before a
panel authorized by the National Association of Securities Dealer, Inc. to
appeal any delisting decision based on the closing bid price requirement. The
Company also requested a waiver of compliance with Marketplace Rule 4450(a)(3)
regarding the net tangible asset requirement. On July 27, 1998, Nasdaq granted
the Company a hearing, which will be held on September 2, 1998 in Washington,
D.C. Any interim delisting action by Nasdaq has been stayed, pending the results
of that hearing. At the hearing, the Company will be allowed to present its case
for continued inclusion in the Nasdaq National Market, based on its ability to
regain and maintain compliance with all Nasdaq listing requirements. If the
panel determines that the Company's common stock should be delisted, such
delisting could occur as early as September 2, 1998. In this event, the Company
would evaluate its procedural remedies under Nasdaq's Marketplace Rules at such
time. Any such delisting could adversely affect the liquidity of the Company's
common stock.



ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

                  *10.1    Agreement between DIRECTV and Heartland Wireless
                           Communications, Inc. dated April 5, 1998.

                  **10.2   Employment Agreement between Heartland Wireless
                           Communications, Inc. and Christopher P. Dailledouze
                           dated April 8, 1998.


                                     - 18 -

<PAGE>   19



                  **10.3   Employment Agreement between Heartland Wireless
                           Communications, Inc. and Candice A. Farley dated
                           April 8, 1998.

                  **10.4   Employment Agreement between Heartland Wireless
                           Communications, Inc. and J. Curtis Henderson dated
                           April 8, 1998.

                  **10.5   Employment Agreement between Heartland Wireless
                           Communications, Inc. and Marjean Henderson dated
                           April 8, 1998.

                  **10.6   Employment Agreement between Heartland Wireless
                           Communications, Inc. and Randall C. May dated April
                           8, 1998.

                  **10.7   Employment Agreement between Heartland Wireless
                           Communications, Inc. and Wayne M. Taylor dated April
                           8, 1998.

                  **27     Financial Data Schedule

--------------------------------

*Filed herewith. Confidential portions of the DIRECTV Agreement and exhibits
thereto have been omitted and filed separately with the Securities and Exchange
Commission under a confidential treatment request ("CTR") pursuant to Rule 24b-2
of the Securities Exchange Act of 1934, as amended. The Company will provide
without charge, upon written request, a copy of exhibits to the DIRECTV
Agreement, with confidential portions omitted pursuant to the CTR.

**Filed herewith.

         (b)      REPORTS ON FORM 8-K

1.       On April 15, 1998 the Company filed a Current Report on Form 8-K dated
         April 15, 1998 regarding the Company's determination not to make an
         interest payment on the 13% Notes.


                                     - 19 -

<PAGE>   20



                                    SIGNATURE


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


Dated:  August 14, 1998          HEARTLAND WIRELESS COMMUNICATIONS, INC.



                                 By:  /s/ Carroll D. McHenry
                                      ------------------------------------------
                                      Carroll D. McHenry
                                      Chairman of the Board, President and Chief
                                      Executive Officer (Principal Executive 
                                      Officer)



                                 By:  /s/ Marjean Henderson
                                      ------------------------------------------
                                      Marjean Henderson
                                      Senior Vice President and Chief Financial
                                      Officer (Principal Financial Officer)


                                     - 20 -

<PAGE>   21



                                Index to Exhibits

<TABLE>
<CAPTION>



Exhibit
Number            Description
-------           -----------

<S>         <C>
     10.1   Agreement between DIRECTV and Heartland Wireless Communications,
            Inc. dated April 5, 1998.

     10.2   Employment Agreement between Heartland Wireless Communications, Inc.
            and Christopher P. Dailledouze dated April 8, 1998.

     10.3   Employment Agreement between Heartland Wireless Communications, Inc.
            and Candice A. Farley dated April 8, 1998.

     10.4   Employment Agreement between Heartland Wireless Communications, Inc.
            and J. Curtis Henderson dated April 8, 1998.

     10.5   Employment Agreement between Heartland Wireless Communications, Inc.
            and Marjean Henderson dated April 8, 1998.

     10.6   Employment Agreement between Heartland Wireless Communications, Inc.
            and Randall C. May dated April 8, 1998.

     10.7   Employment Agreement between Heartland Wireless Communications, Inc.
            and Wayne M. Taylor dated April 8, 1998.

     27     Financial Data Schedule
</TABLE>