<PAGE>

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



                                  FORM 10-QA


(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
-
ACT OF 1934
For the quarterly period ended January 31, 2000

                                      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 0-23007

                    AMERICAN TELESOURCE INTERNATIONAL, INC.
            (Exact name of registrant as specified in its charter)


            Delaware                                           74-2849995
  (State or other jurisdiction                               (IRS Employer
of incorporation or organization)                          Identification No.)


                        12500 Network Blvd., Suite 407
                           San Antonio, Texas 78249
                                (210) 558-6090
   (Address, including zip code, of registrant's principal executive offices
                  and 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
                                                ---

     The number of shares outstanding of the registrant's common stock at April
10, 2000 was 64,646,831.
-------------------------------------------------------------------------------
<PAGE>

                    AMERICAN TELESOURCE INTERNATIONAL, INC.
                               AND SUBSIDIARIES

                         QUARTERLY REPORT ON FORM 10-Q
                     FOR THE QUARTER ENDED JANUARY 31, 2000

                                     INDEX


Part I  FINANCIAL INFORMATION

                                                                      Page
                                                                      ----
Item 1. Interim Consolidated Financial Statements (Unaudited)
        Consolidated Balance Sheets as of July 31, 1999 and
          January 31, 2000.............................................  3
        Consolidated Statements of Operations for the Three and
          Six Months Ended January 31, 1999 and 2000...................  4
        Consolidated Statements of Comprehensive Loss for the
          Three and Six Months ended January 31, 1999and 2000..........  5
        Consolidated Statements of Cash Flows for the Six Months
          Ended January 31, 1999 and 2000..............................  6
        Notes to Consolidated Financial Statements.....................  7

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations............................ 13

Part II OTHER INFORMATION

Item 2  Change in Securities and Use of Proceeds....................... 22

Item 6  Exhibits and Reports on Form 8-K............................... 23

                                       2
<PAGE>

                    AMERICAN TELESOURCE INTERNATIONAL, INC.
                               AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                    (In thousands, except share information)

<TABLE>
<CAPTION>
                                                   July 31,     January 31,
                                                     1999          2000
                                                  ----------    ----------
                                                                (unaudited)
<S>                                               <C>           <C>
ASSETS
------
CURRENT ASSETS:
 Cash and cash equivalents                        $      379    $      663
 Accounts receivable, net of allowances
  of $ 1,600 and $ 1,470, respectively                 3,693         4,439
 Prepaid expenses and other assets                       755         1,009
                                                  ----------    ----------
     Total current assets                              4,827         6,111
                                                  ----------    ----------


PROPERTY AND EQUIPMENT (At cost)                      16,669        17,690
 Less - Accumulated depreciation and
  amortization                                        (4,713)       (6,622)
                                                  ----------    ----------
     Net property and equipment                       11,956        11,068
                                                  ----------    ----------

OTHER ASSETS, net
 Goodwill, net                                         5,032         4,963
 Contracts, net                                          703           374
 Trademarks, net                                         789           699
 Other assets                                            615           732
                                                  ----------    ----------
     Total assets                                 $   23,922    $   23,947
                                                  ==========    ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
 Accounts payable                                 $    4,004    $    5,765
 Accrued liabilities                                   3,167         2,275
 Current portion of notes payable                        961           339
 Current portion of convertible long-term debt         1,942           -
 Current portion of obligations under
   capital leases                                      1,430         1,476
 Deferred revenue                                        233           185
                                                  ----------    ----------
     Total current liabilities                        11,737        10,040
                                                  ----------    ----------

LONG-TERM LIABILITIES:
 Notes payable, less current portion                     312            11
 Obligations under capital leases, less
  current portion                                      5,523         4,900
 Other long-term liabilities                             213           160
                                                  ----------    ----------
     Total long-term liabilities                       6,048         5,071
                                                  ----------    ----------

COMMITMENTS AND CONTINGENCIES:

STOCKHOLDERS' EQUITY:
 Preferred stock, $0.001 par value,
  10,000,000 shares authorized, Series
  A Cumulative Convertible Preferred
  Stock, 50,000 shares authorized,
  24,145 shares issued and outstanding
  at July 31, 1999, 38,400 shares issued
  and outstanding at January 31, 2000                   -             -
  Series B Cumulative Convertible Preferred
  Stock, 2,000 shares authorized, 2,000
  shares issued and outstanding at July 31,
  1999, no shares issued and outstanding
  at January 31, 2000                                   -             -
  Series C Cumulative Convertible Preferred
  Stock, 500 shares authorized, no shares
  issued and outstanding at July 31, 1999,
  500 shares issued and outstanding at
  January 31, 2000                                      -             -
 Common stock, $0.001 par value, 100,000,000
  shares authorized, 48,685,287 issued and
  outstanding at July 31, 1999, 56,254,894
  issued and outstanding at January 31, 2000              49            56
 Additional paid in capital                           29,399        37,442
 Accumulated deficit                                 (21,987)      (27,640)
 Deferred compensation                                  (466)         (182)
 Accumulated other comprehensive income                 (858)         (840)
                                                  ----------    ----------
     Total stockholders' equity                        6,137         8,836

     Total liabilities and stockholders' equity   $   23,922    $   23,947
                                                  ==========    ==========
</TABLE>

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

                                       3
<PAGE>

                    AMERICAN TELESOURCE INTERNATIONAL, INC.
                               AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except per share amounts)
                                  (unaudited)


<TABLE>
<CAPTION>
                                                    Three months ended January 31,         Six months ended January 31,
                                                        1999              2000               1999               2000
                                                   --------------    --------------     --------------    --------------
<S>                                                <C>               <C>                <C>               <C>
OPERATING REVENUES:
  Network Services
      Carrier                                            $  3,118          $  6,290           $  8,743          $ 11,658
      Private Network                                       1,181               602              2,269             1,339
  Call Services
      Integrated Prepaid                                    1,356             1,515              2,624             2,916
      Postpaid                                              1,849               992              3,548             2,167
  Internet e-commerce                                         621             1,281              1,177             2,054
                                                   --------------    --------------     --------------    --------------

     Total operating revenues                               8,125            10,680             18,361            20,134
                                                   --------------    --------------     --------------    --------------

OPERATING EXPENSES:
  Cost of services                                          4,824             7,104             11,325            13,631
  Selling, general and administrative                       3,077             3,252              6,186             6,627
  Bad debt expense                                            163                93                387               212
  Depreciation and amortization                               758             1,427              1,407             2,335
                                                   --------------    --------------     --------------    --------------

     Total operating expenses                               8,822            11,876             19,305            22,805
                                                   --------------    --------------     --------------    --------------

Operating loss                                               (697)           (1,196)              (944)           (2,671)

OTHER INCOME(EXPENSE):
  Other income (expense)                                      (27)               10                 (7)               26
  Interest expense                                           (365)             (626)              (780)           (1,114)
                                                   --------------    --------------     --------------    --------------

     Total other income (expense)                            (392)             (616)              (787)           (1,088)
                                                   --------------    --------------     --------------    --------------

NET LOSS                                                  ($1,089)          ($1,812)           ($1,731)          ($3,759)

LESS: PREFERRED DIVIDENDS                                       0              (634)                 0            (1,894)
                                                   --------------    --------------     --------------    --------------

NET LOSS TO COMMON STOCKHOLDERS                           ($1,089)          ($2,446)           ($1,731)          ($5,653)
                                                   ==============    ==============     ==============    ==============

BASIC AND DILUTED LOSS PER SHARE                           ($0.02)           ($0.05)            ($0.04)           ($0.11)
                                                   ==============    ==============     ==============    ==============
WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                                      46,324            50,058             45,976            49,372
                                                   ==============    ==============     ==============    ==============
</TABLE>

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

                                       4
<PAGE>

                    AMERICAN TELESOURCE INTERNATIONAL, INC.
                               AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                (In thousands)
<TABLE>
<CAPTION>
                                                             For the three months ended          For the six months ended
                                                           -----------------------------       ----------------------------
                                                                    January 31,                         January 31,
                                                           -----------------------------       ----------------------------
                                                               1999              2000              1999             2000
                                                           -----------       -----------       -----------      -----------
<S>                                                        <C>               <C>               <C>              <C>
Net loss to common stockholders                                ($1,089)          ($2,446)          ($1,731)         ($5,653)

     Other comprehensive income (loss), net of tax:

     Foreign currency translation adjustments                       25              (220)               57               18
                                                           -----------       -----------       -----------      -----------

Comprehensive loss to common stockholders                      ($1,064)          ($2,666)          ($1,674)         ($5,635)
                                                           ===========       ===========       ===========      ===========
</TABLE>

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

                                       5
<PAGE>

                    AMERICAN TELESOURCE INTERNATIONAL, INC.
                               AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (In thousands)
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                                           Six months ended January 31,
                                                                                         1999                        2000
                                                                                     ------------                ------------
<S>                                                                                     <C>                         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                               ($1,731)                    ($3,759)
  Adjustments to reconcile net loss to net cash provided by
   (used in) operating activities-
     Depreciation and amortization                                                         1,407                       2,335
     Amortization of debt discount                                                           165                         353
     Deferred compensation                                                                   232                         283
     Provision for losses on accounts receivable                                             387                         213
     Changes in operating assets and liabilities
       (Increase) Decrease in accounts receivable                                           (602)                       (863)
       (Increase) Decrease in other assets-current and long-term                             (68)                       (555)
       Increase (Decrease) in accounts payable                                            (1,372)                      1,293
       Increase (Decrease) in accrued liabilities                                          1,566                         232
       Decrease in deferred revenue                                                          (80)                        (47)
                                                                                     ------------                ------------
Net cash used in operating activities                                                        (96)                       (515)
                                                                                     ------------                ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property and equipment                                                       (641)                       (688)
  Net cash paid in acquisitions                                                             (171)                          -
                                                                                     ------------                ------------
Net cash used in investing activities                                                       (812)                       (688)
                                                                                     ------------                ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from issuance of debt                                                             180                         106
  Net decrease in short-term borrowings                                                     (112)                       (306)
  Net increase from advanced funding arrangements                                            296                         161
  Payments on debt                                                                          (183)                       (503)
  Capital lease payments                                                                    (682)                       (678)
  Payments on long-term                                                                        -                         (34)
   liabilities
  Proceeds from issuance of preferred stock, net
   of issuance costs                                                                           -                       1,821
  Proceeds from issuance of common stock, net
   of issuance costs                                                                         558                         920
                                                                                     ------------                ------------
Net cash provided by financing activities                                                     57                       1,487
                                                                                     ------------                ------------

Net (decrease) increase in cash                                                             (851)                        284

Cash, beginning of period                                                                  1,091                         379
                                                                                     ------------                ------------

Cash, end of period                                                                     $    240                    $    663
                                                                                     ============                ============

The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       6
<PAGE>

                    AMERICAN TELESOURCE INTERNATIONAL, INC.
                               AND SUBSIDIARIES
              NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)
                   (In thousands, except per share amounts)


     1.  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

     The accompanying unaudited consolidated financial statements, which include
the accounts of ATSI-Delaware, ATSI-Canada, ATSI-Texas, ATSI-Mexico, ATSI de
CentroAmerica, Computel, Telespan, Sinfra, and GlobalSCAPE have been prepared in
accordance with Rule 10-01 of Regulation S-X, "Interim Financial Statements,"
and accordingly do not include all information and footnotes required under
generally accepted accounting principles for complete financial statements. In
the opinion of management, these interim financial statements contain all
adjustments, without audit, necessary to present fairly the consolidated
financial position of ATSI, Inc. and its subsidiaries ("ATSI" or "the Company")
as of July 31, 1999 and January 31, 2000, the results of their operations for
the three and six months ended January 31, 1999 and 2000 and cash flows for the
six months ended January 31, 1999 and 2000.  All adjustments are of a normal
recurring nature.  All significant intercompany balances and transactions have
been eliminated in consolidation.  It is recommended that these interim
consolidated financial statements be read in conjunction with the consolidated
financial statements and the notes thereto for the year ended July 31, 1999
included in the Company's annual report on Form 10-K filed with the SEC on
October 26, 1999.  Certain prior period amounts have been reclassified for
comparative purposes. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full year.

     In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments imbedded in other contracts, and for hedging activities.  It
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. However, in June 1999, FASB issued Statement of Financial
Accounting Standards (SFAS) No. 137, "Accounting for Derivative Instruments and
Hedging Activities- Deferral of the Effective Date of FASB Statement No. 133".
SFAS 137 delays the effective date of SFAS 133 to June 15, 2000.  The Company
believes the adoption of this statement will not have a material effect on the
financial condition or results of operations of the Company.


     2.  FUTURE OPERATIONS

     The consolidated financial statements of the Company have been prepared on
the basis of accounting principles applicable to a going concern.  For the
period from December 17, 1993 to January 31, 2000, the Company has incurred
cumulative net losses of approximately $27.6 million.   Further, the Company has
a working capital deficit of approximately $3.9 million at January 31, 2000.
Although the Company has capital resources available to it, these resources are
limited and may not be available to support its ongoing operations until such
time as the Company is able to maintain positive cash flow from operations.
There is no assurance the Company will be able to achieve future revenue levels
sufficient to support operations or recover its investment in property and
equipment, goodwill and other

                                       7
<PAGE>

intangible assets. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent upon the ongoing support of its stockholders and
customers, its ability to obtain capital resources to support operations and its
ability to successfully market its services.

     The Company is likely to require additional financial resources in the near
term and could require additional financial resources in the long-term to
support its ongoing operations.  The Company has retained various financial
advisers to assist it in refining its strategic growth plan, defining its
capital needs and obtaining the funds required to meet those needs.  The plan
includes securing funds through equity offerings and entering into lease or
long-term debt financing agreements to raise capital.

     On February 17, 2000, the Company announced plans to capitalize on the
value of its wholly owned subsidiary, GlobalSCAPE, Inc. by spinning out a
portion of its ownership in GlobalSCAPE to its shareholders, and offering
additional GlobalSCAPE shares to ATSI shareholders and the GlobalSCAPE customer
base. Shareholders of ATSI will be allowed to participate in these transactions,
which are designed to accomplish three goals: 1) To increase ATSI shareholder
value; 2) to raise funds necessary for further growth at GlobalSCAPE, and 3) to
raise funds necessary for further growth at ATSI. Management anticipates that
the transaction will provide cash to ATSI to reduce or eliminate its working
capital deficit. In addition, the transactions should also provide an ongoing
benefit to ATSI, as it will realize a stepped-up benefit through its retained
ownership in GlobalSCAPE, enhancing its own financial position and its ability
to act on or finance opportunities going forward.

     There can be no assurances, however, that such equity offerings or other
long-term debt financing arrangements will actually be consummated or that such
funds, if received, will be sufficient to support existing operations until
revenue levels are achieved sufficient to maintain positive cash flow from
operations.  If the Company is not successful in completing additional equity
offerings or entering into other financial arrangements, or if the funds raised
in such stock offerings or other financial arrangements are not adequate to
support the Company until a successful level of operations is attained, the
Company has limited additional sources of debt or equity capital and would
likely be unable to continue operating as a going concern.


     3.  CAPITAL LEASES

     As of July 31, 1999, the Company entered into a capital lease transaction
with NTFC Capital Corporation, ("NTFC") to finance the purchase of a DMS
250/3000 International gateway switch from Northern Telecom, Inc. and additional
equipment totaling approximately $2,000,000 over a five and a half-year period
with payments delayed for six months. The lease facility requires that the
Company meet certain financial covenants on a quarterly basis beginning October
31, 1999, including minimum revenue levels, gross margin levels, earnings before
interest, taxes and depreciation and amortization (EBITDA) results and debt to
equity ratios. As of October 31, 1999 and January 31, 2000, the Company was in
default of quarterly financial covenants related to revenues, gross margins and
EBITDA. The Company has received a waiver from NTFC stating that it waived the
Company's compliance requirements as of those dates.  However, based upon the
Company's results before and after the period ended January 31, 2000, the
Company will most likely be in default of these same covenants at the end of its
next fiscal quarter, April 30, 2000.  As such, the Company has requested that
NTFC review the Company's current business plan, including expected results and
capital requirements, in order to re-set the financial covenants applicable to
its capital lease obligation and prevent events of default from occurring on a
quarterly basis going forward.  Based on discussions with NTFC, management
believes it

                                       8
<PAGE>

is probable that NTFC will re-set the financial covenants such that the Company
will be in compliance as of April 30, 2000. NTFC is in the process of reviewing
this information, and the Company anticipates receiving the results of this
review prior to April 30, 2000. As such, the Company has classified its
obligation to NTFC as long-term. However, should the Company not receive revised
financial covenants from NTFC, it is likely that the Company will be required to
classify its entire obligation to NTFC as current as of April 30, 2000.


     4.  NOTES PAYABLE

     In January 2000, the note holder converted a note payable into Common
Stock. The note payable balance inclusive of principal, interest and other fees
was approximately $439,000. At issuance, the note payable had 250,000 warrants
to the note holder at an exercise price of $3.56 per share. Unamortized debt
discount associated with the warrants at the time of conversion was
approximately $87,000, which the Company fully expensed in January 2000. The
note payable balance inclusive of principal, accrued interest and other fees was
converted into 370,603 shares of Common Stock.

     The Company utilizes the services of a billing clearinghouse to process
and collect receivables related to its long distance call services. As part of a
factoring arrangement, the clearinghouse advances 75% of these receivables
within five days of presentment. Under a separate agreement with a financing
company, the Company was advanced an additional 13.75% of these receivables
through April 1999. As part of a tri-party agreement between the Company, the
billing clearinghouse and the financing company, the financing company was
repaid by the billing clearinghouse from payments arising from the ultimate
collection of the Company's long distance call services receivables. In November
1999, the Company, under the tri-party agreement, paid off the note payable to
the financing company. The financing company now claims that the Company owes an
approximate $600,000. The Company believes that the amount claimed by the
financing company is in error and that the billing clearinghouse has, in fact,
paid the financing company approximately $160,000 more than what it is owed,
which the Company has reflected in the accompanying consolidated balance sheets
as a note receivable.  The billing clearinghouse has agreed not to transmit any
additional funds to the financing company until this dispute is resolved. The
Company is attempting to work with the financing company to resolve this dispute
and obtain a release of the funds held by the billing clearinghouse.


     5.  CONVERTIBLE DEBT

     In January 2000, the note holders converted $2.2 million of convertible
notes, originally issued in March and May of 1997, which would have been due in
March 2000. The convertible notes' face value and accrued interest at the time
of conversion was approximately $2.2 million and $700,000, respectively. At
issuance, the convertible notes had 4,776,176 warrants to the convertible debt
holders at an exercise price of $0.27 per share. Unamortized debt discount
associated with the warrants at the time of conversion was approximately
$106,000, which the Company fully expensed in January 2000. In January 2000,
conversion of the notes resulted in the issuance of 726,257 shares of Common
Stock related to the warrants, 716,424 of which were the aforementioned $0.27
warrants and 9,833 of unrelated $0.85 warrants against the face value and
accrued interest owed them. The remaining convertible notes and accrued interest
were converted into 2,262,329 shares of Common Stock.

                                       9
<PAGE>

     6.  PREFERRED STOCK

     In December 1999, the Company issued 1,425 shares of Series A Preferred
Stock for cash proceeds of approximately $1.4 million.  The Series A Preferred
Stock accrues cumulative dividends at the rate of 10% per annum.

     The Series A Preferred Stock and any accumulated, unpaid dividends may be
converted into Common Stock for up to one year at the average closing price of
the Common Stock for twenty (20) days preceding the Date of Closing (the
"Initial Conversion Price").  On each Anniversary Date up to and including the
fifth Anniversary Date, the Conversion price on any unconverted Preferred Stock,
will be reset to be equal to 75% of the average closing price of the stock for
the then twenty (20) preceding days provided that the Conversion price can not
be reset any lower than 75% of the Initial Conversion Price.  As this conversion
feature is considered a "a beneficial conversion feature" to the holder, the
Company has allocated approximately $943,000 of the approximate $1.4 million in
proceeds to additional paid-in capital as a discount to be amortized over a one
year period.  The Series A Preferred Stock is callable and redeemable by the
Company at 100% of its face value, plus any accumulated, unpaid dividends at the
Company's option any time after the Common Stock of the Company has traded at
200% or more of the conversion price in effect for at least twenty (20)
consecutive trading days, so long as the Company does not call the Preferred
Stock prior to the first anniversary date of the Date of Closing.  The terms of
the Company's Series A Preferred Stock restrict the Company from declaring and
paying dividends on its common stock until such time as all outstanding
dividends have been fulfilled related to the Preferred Stock.

     During the quarter, the holder of the Company's Series B Preferred Stock
elected to convert the remaining 1,925 shares into Common Stock of the Company.
This conversion resulted in the issuance of approximately 2,525,308 shares of
the Company's Common Stock during the quarter. An additional 75 shares of Series
B Preferred Stock had previously been converted during the quarter ending
October 31, 1999 resulting in the issuance of approximately 99,906 shares of
Common Stock.


     7. SEGMENT REPORTING

     In an attempt to identify its reportable operating segments, the Company
considered a number of factors or criteria. These criteria included segmenting
based upon geographic boundaries only, segmenting based on the products and
services provided, segmenting based on legal entity and segmenting by business
focus. Based on these criteria or factors the Company has determined that it has
three reportable operating segments: (1) U.S. Telco; (2) Mexico Telco; and (3)
Internet e-commerce. Clearly, the Company's Internet e-commerce subsidiary,
GlobalSCAPE, Inc. and its operations can be differentiated from the
telecommunication focus of the rest of the Company. Additionally, the Company
believes that its U.S. and Mexican subsidiaries should be separate segments in
spite of the fact that many of the products are borderless. Both, the U.S. Telco
and Mexican Telco segments include revenues generated from Integrated Prepaid,
Postpaid, and Private Network Services. The Company's Carrier Services revenues,
generated as a part of its U.S. Telco segment, are the only revenues not
currently generated by both the U.S. Telco and Mexico Telco segments. The
Company has included the operations of ATSI-Canada, ATSI-Delaware and all
businesses falling below the reporting threshold in the "Other" segment. The
"Other" segment also includes intercompany eliminations.

                                       10
<PAGE>

<TABLE>
<CAPTION>
                                                           For the three months ended             For the six months ended
                                                         January 31,        January 31,        January 31,        January 31,
                                                            1999               2000               1999               2000
<S>                                                     <C>                <C>                <C>                <C>
U.S. Telco
-----------------------------------------------------------------------------------------------------------------------------
External revenues                                       $  5,942,131       $  7,622,248       $ 14,226,266       $ 14,643,005
Intercompany revenues                                              -       $    320,677                  -       $    599,864
         Total revenues                                 $  5,942,131       $  7,942,925       $ 14,226,266       $ 15,242,869
                                                        ============       ============       ============       ============

Earnings before interest, taxes, depreciation and
 amortization (EBITDA)                                  $    122,493          ($176,045)      $    980,259          ($455,355)

Operating income (loss)                                    ($342,784)         ($478,453)      $     82,830        ($1,298,737)

Net income (loss)                                          ($987,681)         ($584,364)          ($17,618)       ($1,722,904)

Total assets                                            $ 12,413,385       $  9,526,524       $ 12,413,385       $  9,526,524

Mexico Telco
-----------------------------------------------------------------------------------------------------------------------------
External revenues                                       $  1,561,356       $  1,776,530       $  2,958,032       $  3,437,567
Intercompany revenues                                   $  1,110,730       $  1,008,167       $  2,009,648       $  1,993,167
                                                        ------------       ------------       ------------       ------------
         Total revenues                                 $  2,672,086       $  2,784,697       $  4,967,680       $  5,430,734
                                                        ============       ============       ============       ============

EBITDA                                                     ($397,187)         ($288,932)         ($975,038)         ($767,741)

Operating loss                                             ($652,973)       ($1,331,323)       ($1,422,600)       ($2,100,202)

Net loss                                                   ($786,193)       ($1,520,040)       ($1,679,880)       ($2,529,591)

Total assets                                            $ 16,566,813       $ 12,139,941       $ 16,566,813       $ 12,139,941

Internet  e-commerce
-----------------------------------------------------------------------------------------------------------------------------
External revenues                                       $    621,410       $  1,281,034       $  1,176,876       $  2,053,624
Intercompany revenues                                              -                  -                  -                  -
         Total revenues                                 $    621,410       $  1,281,034       $  1,176,876       $  2,053,624
                                                        ============       ============       ============       ============

EBITDA                                                  $    335,461       $    722,478       $    459,663       $    985,505

Operating income                                        $    304,682       $    646,450       $    409,698       $    840,650

Net income                                              $    308,220       $    643,056       $    419,158       $    838,311

Total assets                                            $  1,277,083       $  1,816,530       $  1,277,083       $  1,816,530

Other
-----------------------------------------------------------------------------------------------------------------------------
External revenues                                                  -                  -                  -                  -
Intercompany revenues                                    ($1,110,730)       ($1,394,224)       ($2,009,648)       ($2,658,411)
                                                        ------------       ------------       ------------       ------------
         Total revenues                                  ($1,110,730)       ($1,394,224)       ($2,009,648)       ($2,658,411)
                                                        ============       ============       ============       ============

EBITDA                                                             -           ($27,123)           ($2,500)          ($98,199)

Operating loss                                               ($6,225)          ($33,581)          ($14,950)         ($112,313)

Net income (loss)                                       $    377,585          ($984,368)         ($452,111)       ($2,238,489)

Total assets                                             ($5,202,066)      $    463,661        ($5,202,066)      $    463,661

Total
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       11
<PAGE>

<TABLE>
<S>                                                     <C>                <C>                <C>                <C>
External revenues                                       $  8,124,897       $ 10,679,812       $ 18,361,174       $ 20,134,196
Intercompany revenues                                              -                  -                  -                  -
                                                        ------------       ------------       ------------       ------------
         Total revenues                                 $  8,124,897       $ 10,679,812       $ 18,361,174       $ 20,134,196
                                                        ============       ============       ============       ============

EBITDA                                                  $     60,767       $    230,378       $    462,384          ($335,790)

Depreciation, Depletion and Amortization                   ($758,066)       ($1,427,285)       ($1,407,406)       ($2,334,812)

Operating loss                                             ($697,299)       ($1,196,907)         ($945,022)       ($2,670,602)

Net loss                                                 ($1,088,068)       ($2,445,717)       ($1,730,451)       ($5,652,673)

Total assets                                            $ 25,055,215       $ 23,946,656       $ 25,055,215       $ 23,946,656

</TABLE>


     8.  LEGAL PROCEEDINGS

     On February 11, 2000, the Company filed a Petition and Application for TRO
and Temporary Injunctive Relief in district court in Bexar County, Texas (Cause
Number 2000CI02032) against the former manager of its Costa Rican operations,
Alejandro Filloy, a former private network customer, Simple Communications
Technologies, Inc. and two other defendants, Gammacom Communicaciones, S.A. and
American Teleport Services, Inc.  The Company alleges that Alejandro Filloy and
Simple Communications used ATSI's assets to establish a competing business under
the names Gammacom (a Costa Rican corporation) and American Teleport Services (a
Florida corporation). The Company has asserted claims for conversion, fraud, and
tortious interference with contractual relations and conspiracy.  The Company
has also asked for payment of unpaid amounts due from Simple Communications
Technologies, Inc. under its agreement for private network services.

     In addition, the Company has filed a demand for payment against another
former private network customer for services used and services which continue to
accrue under the terms of agreement. The former customer has asserted that it
did not have a binding written contract and does not owe the Company for any
service not used.

     The Company has outstanding receivables related to these private network
customers for both services used and services which continue to accrue under the
terms of the respective agreements. While the Company can not estimate the
possible loss, if any related to these receivables, there can be no assurance
that the resolutions of both of these disputes would not have a material effect
on the Company's results of operations. As such, the Company has established a
reserve for the amounts related to services, which continue to accrue under the
agreements.


     9.  RELATED PARTY TRANSACTIONS

     In February 2000, the Company's Board of Directors approved a plan to lend
approximately $1.4 million, at a market interest rate, in the aggregate to
certain key executive officers to allow them to exercise approximately 2,250,000
of their vested options. The executive officers who borrowed under the plan must
adhere to the following conditions: 1) they must contribute 10% in cash of the
amount borrowed; 2) the stock obtained with the exercises must be escrowed under
a twelve month standstill agreement or until such time as the note is paid; and
3) any derivative equity obtained from the stock's ownership must be escrowed
for a six-month period.

                                       12
<PAGE>

     10. SUBSEQUENT EVENTS

     In February 2000, the Company issued 3,000 shares of Series D Preferred
Stock for cash proceeds of approximately $3,000,000. The Series D Preferred
Stock accrues cumulative dividends at the rate of 6% per annum.

     The Series D Preferred Stock and any accumulated, unpaid dividends may be
converted into Common Stock for up to two years at the lesser of a) the market
price on the day prior to closing or b) 83% of the five lowest closing bid
prices on the ten days preceding conversion. As this conversion feature is
considered a " beneficial conversion feature" to the holder, the Company will
allocate a portion of the proceeds to additional paid-in capital as a discount
to be amortized over the lesser of the period most beneficial to the holder or
upon exercise of the conversion feature.  The terms of the Company's Series D
Preferred Stock restrict the Company from declaring and paying dividends on its
common stock until such time as all outstanding dividends have been fulfilled
related to the Preferred Stock.

     In March 2000, the Company issued 1,000 shares of Series A Preferred Stock
for cash proceeds of approximately $1.0 million.  The Series A Preferred Stock
accrues cumulative dividends at the rate of 10% per annum.

     The Series A Preferred Stock and any accumulated, unpaid dividends may be
converted into Common Stock for up to one year at the average closing price of
the Common Stock for twenty (20) days preceding the Date of Closing (the
"Initial Conversion Price").  On each Anniversary Date up to and including the
fifth Anniversary Date, the Conversion price on any unconverted Preferred Stock,
will be reset to be equal to 75% of the average closing price of the stock for
the then twenty (20) preceding days provided that the Conversion price can not
be reset any lower than 75% of the Initial Conversion Price.  As this conversion
feature is considered a "beneficial conversion feature" to the holder, the
Company will allocate a portion of the proceeds to additional paid-in capital as
a discount to be amortized over the lesser of one year or upon exercise of the
conversion feature.  The Series A Preferred Stock is callable and redeemable by
the Company at 100% of its face value, plus any accumulated, unpaid dividends at
the Company's option any time after the Common Stock of the Company has traded
at 200% or more of the conversion price in effect for at least twenty (20)
consecutive trading days, so long as the Company does not call the Preferred
Stock prior to the first anniversary date of the Date of Closing. The terms of
the Company's Series A Preferred Stock restrict the Company from declaring and
paying dividends on its common stock until such time as all outstanding
dividends have been fulfilled related to the Preferred Stock.

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

     This Quarterly Report on Form 10-Q contains certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act").  Specifically, all statements other
than statements of historical facts included in the report regarding the
Company's financial position, business strategy and plans and objectives of
management of the Company for future operations are forward-looking statements.
These forward-looking statements are based on the beliefs of the Company's
management, as well as assumptions made by and information currently available
to the Company's management.  When used in this report, the words "anticipate,"
"believe," "could,"

                                       13
<PAGE>

"estimate," "expect" and "intend" and words or phrases of similar import, as
they relate to the Company or Company's management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions related to certain factors including, without
limitation, the inability to obtain capital, changes in the Mexican political or
economic environment, the adoption by Mexico of new laws or regulations, or
changes effected by Mexico to existing laws affecting the communications
industry generally or the Company specifically, increased or redirected
competition efforts, targeting the Company's services or operation, by
competitors, general economic conditions, customer relations, relationships with
vendors, the interest rate environment, seasonality, the operation of the
Company's network, the ability of the Company's direct sales force to
successfully replace its independent marketing representatives or the failure of
its direct sales force to produce anticipated results, transmission costs,
product introductions and acceptance, the inability to continue to generate new
sources of revenue, technological change, changes in industry practices, one-
time events and other factors described herein ("cautionary statements").
Reference is made to the risks and uncertainties described in the Company's
annual report on Form 10-K. Although the Company believes that the expectations
are reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.


General

     The Company's mission is to employ leading-edge technologies for delivery
of exceptional telecommunication services to underserved Latino markets in the
U.S. and Latin America emphasizing convenience, accessibility, quality,
reliability, and affordability, while continually seeking to add value through
new and innovative products and services. Utilizing a framework of licenses,
interconnection and service agreements, network facilities and retail
distribution channels (hereinafter collectively referred to as the "framework"),
the Company is primarily focused on capturing market share in the international
telecommunications corridor between the United States and Mexico.  Even with
poor phone-line penetration, the Company's research indicates that Mexico may
exchange more international traffic with the U.S. than any other country in the
world within the next two years.  As the regulatory environments allow, the
Company plans to establish framework in other Latin American countries as well.
In addition to the U.S. and Mexico, the Company currently owns or has rights to
use facilities in and has strategic relationships with carriers in Costa Rica,
El Salvador, and Guatemala.

     Utilizing the framework described above, the Company provides local,
domestic long distance and international calls from its own public telephones
and communication centers within Mexico. Consumers visiting a Company-owned
communication center or public telephone may dial directly to the desired party
in exchange for cash payment, or can charge the call to a U.S. address (collect,
person-to-person, etc.) or calling card, or to a U.S. dollar-denominated credit
card with the assistance of an operator. In July 1998, the Company began
providing domestic U.S. and international call services to Mexico to residential
customers on a limited basis in the U.S. Callers may either pre-subscribe to the
Company's one-plus residential service, or dial around their pre-subscribed
carrier by dialing 10-10-624, plus the area code and desired number. Where
possible, these retail calls are transported over the Company's own network
infrastructure.

                                       14
<PAGE>

     Utilizing the same framework described above, the Company also serves as a
retail and wholesale facilities-based provider of network services for corporate
clients and U.S. and Latin American telecommunications carriers.  These
customers typically lack transmission facilities into certain markets, or
require additional capacity into certain markets. The Company currently provides
these services to and from the United States, Mexico, Costa Rica, El Salvador
and Guatemala.

     The Company is also the sole owner of GlobalSCAPE, Inc., which is rapidly
becoming a leader in electronic commerce of top Internet-based software,
utilizing the Web as an integral component of its development, marketing,
distribution and customer relationship strategies.  Utilizing CuteFTP as its
flagship product, GlobalSCAPE has a user base of approximately 10 million users
as of January 31, 2000.

     The Company's consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
losses since inception and has a working capital deficit as of January 31, 2000.
For the reasons stated in Liquidity and Capital Resources and subject to the
risks referred to in Liquidity and Capital, the Company expects improved results
of operations and liquidity in the rest of fiscal 2000.

Results of Operations

     The following table sets forth certain items included in the Company's
results of operations in dollar amounts and as a percentage of total revenues
for the three and six month periods ended January 31, 1999 and 2000.


<TABLE>
<CAPTION>
                                       Three months ended January 31,               Six months ended January 31,
                                       ------------------------------               ----------------------------
                                         1999                  2000                   1999                2000
                                         ----                  ----                   ----                ----
                                                                      (unaudited)
                                      $          %           $          %           $          %          $          %
                                  --------    -------    --------    -------    --------    -------   --------    -------
Operating revenues:
-------------------
<S>                               <C>         <C>        <C>         <C>        <C>         <C>       <C>         <C>
  Network Services
     Carrier                      $  3,118      38%      $  6,290      59%      $  8,743      48%     $ 11,658      58%
     Private Network                 1,181      14%           602       6%         2,269      12%        1,339       7%
  Call Services
     Integrated Prepaid              1,356      17%         1,515      14%         2,624      14%        2,916      14%
     Postpaid                        1,849      23%           992       9%         3,548      19%        2,167      11%
  Internet e-commerce                  621       8%         1,281      12%         1,177       7%        2,054      10%
                                  --------    -------    --------    -------    --------    -------   --------    -------

Total operating revenues             8,125     100%        10,680     100%        18,361     100%       20,134     100%
                                  --------    -------    --------    -------    --------    -------   --------    -------

Cost of services                     4,824      59%         7,104      67%        11,325      62%       13,631      68%
                                  --------    -------    --------    -------    --------    -------   --------    -------

Gross margin                         3,301      41%         3,576      33%         7,036      38%        6,503      32%

Selling, general and
 administrative expense              3,077      38%         3,252      30%         6,186      34%        6,627      33%


Bad debt expense                       163       2%            93       1%           387       2%          212       1%

Depreciation and amortization          758       9%         1,427      13%         1,407       7%        2,335      11%
                                  --------    -------    --------    -------    --------    -------   --------    -------

Operating loss                        (697)     (8%)       (1,196)    (11%)         (944)     (5%)      (2,671)    (13%)
</TABLE>

                                       15
<PAGE>

<TABLE>
<S>                               <C>         <C>        <C>         <C>        <C>         <C>       <C>         <C>
Other, net                            (392)     (5%)         (616)     (6%)         (787)     (4%)      (1,088)     (6%)
                                  --------    -------    --------    -------    --------    -------   --------    -------

Net loss                            (1,089)    (13%)       (1,812)    (17%)       (1,731)     (9%)      (3,759)    (19%)

Less: preferred dividends                0       0%          (634)     (6%)            0       0%       (1,894)     (9%)
                                  --------    -------    --------    -------    --------    -------   --------    -------

Net loss to common stockholders    ($1,089)    (13%)      ($2,446)    (23%)      ($1,731)     (9%)     ($5,653)    (28%)
                                  ========    =======    ========    =======    ========    =======   ========    =======
</TABLE>

Three Months Ended January 31, 2000 Compared to Three Months Ended January 31,
1999

     Operating revenues. Operating revenues increased approximately $2.6
million, or 31%, due to increases in the Company's carrier, integrated prepaid
and Internet e-commerce services. This increase was offset to some extent by the
decline in the Company's private network and postpaid services.

     Network management services increased approximately $2.6 million, or 60%.
This growth was principally due to the additional minutes processed for other
carriers during the quarter ended January 31, 2000. The Company processed
approximately 16.1 million minutes of traffic for other carriers during the
quarter ended January 31, 1999, as compared to approximately 44.0 million
minutes during the quarter ended January 31, 2000.  In the fourth quarter ended
July 31, 1999, the Company's alternate fiber route became fully operational
enabling the Company to increase its volume of carrier traffic.  While the
volume of carrier traffic will most likely increase as compared to previous
years, the Company may not be able to maintain this growth trend as the Company
continues to increase its focus on retail-based call services, which tend to be
less volatile than wholesale traffic. The Company's private network revenues
declined from $1.2 million to $602,000 between periods due to the loss of
customers upon expiration or termination of their contracts. The Company has
shifted its focus away from the provision of these private network services to
public traffic in the U.S.-Mexican corridor.

     Call service revenues decreased approximately $698,000, or 22% between
quarters.  The decline was principally attributable to lower volumes of
operator-assisted calls originating in Mexico and terminating in the U.S, new
services such as prepaid cellular being introduced into the market by the
Company's competitors, and Mexican cellular providers recently introducing the
concept of  "calling party pays".  During the quarter ended January 31, 2000,
the Company processed approximately 14,000 operator-assisted calls originating
in Mexico and terminating in the U.S. as compared to approximately 42,000 calls
processed in the quarter ending January 31, 1999.  The Company now provides
these services almost exclusively from its own communication centers and
payphones, due to the added expenses associated with third party owned
locations. As the Company believes this call volume trend may continue, it has
recently begun utilizing the services of third-party owned operator centers to
further reduce the cost of providing these calls. Integrated prepaid services,
calls processed in exchange for cash without utilizing the Company's operator
center, increased to $1.5 million from $1.4 million for the periods ended
January 31, 2000 and January 31, 1999, respectively. The calls are paid for
almost exclusively in pesos, and the resulting revenues are translated to U.S.
dollars in the accompanying consolidated financial statements. The average
conversion rate of pesos to dollars during the quarters ended January 31, 1999
and January 31, 2000, was 10.0 and 9.4 respectively.  While call volumes
increased slightly between periods, the pesos generated converted to more U.S.
dollars, period to period.

     The Company's Internet e-commerce services increased approximately
$660,000, or 106% between quarters. This growth was due primarily to the
increased number of downloads of the Company's CuteFTP product between quarters.
Downloads grew from nearly 605,000 in the quarter ended January 1999 to nearly
2.32 million in the quarter ended January 2000.  The increase in

                                       16
<PAGE>

downloads has resulted in a corresponding increase in the Company's revenues as
downloads serve as the primary driver of revenues in coming months as well as
increasing the target audience for banner advertisements. The Company began
selling banner advertisements in April 1999 and advertising revenues produced
approximately 18% of overall e-commerce revenues during the quarter ended
January 31, 2000.

     Cost of Services.  Cost of services increased approximately $2.3 million,
or 47%, between quarters and increased as a percentage of revenues from 59% to
67%, between quarters.  The increase in cost of services was principally
attributable to the increased volume of business handled by the Company as
discussed above. The increase in cost of sales, as a percentage of revenues, was
due primarily to the percentage of lower margin carrier services traffic
increasing from 38% to 59% of overall corporate revenues, quarter to quarter.
The resultant change in the Company's traffic mix led to an increase in the
combined telco operations cost of services from 65% to 75% for the quarter.

     Selling, General and Administrative (SG&A) Expense.  SG&A expenses
increased 6%, or approximately $175,000, between quarters.  As a percentage of
revenues, these expenses decreased from 38% to 30% between quarters.  This
increase in SG&A was primarily due to added SG&A costs at the Company's Internet
e-commerce subsidiary to support the introduction of new products into the
market. SG&A costs associated with the Company's telco businesses remained
relatively flat between periods due to cost reduction efforts and in spite of
expenses incurred with the completion of the Company's plan to consolidate its
Mexico City and Guadalajara operations into one office in Mexico City. The
decrease in SG&A, as a percentage of revenues, was principally attributable to
the increased volume of carrier services business generated by the Company
during the quarter ended January 31, 2000, which generated significantly lower
overhead costs relative to other services provided by the Company.

     Depreciation and Amortization.  Depreciation and amortization rose
approximately $669,000, or 88%, between quarters and increased as a percentage
of revenues from 9% to 13%.  The increase was primarily related to purchases of
property, plant and equipment of approximately $1.4 million between January 31,
1999 and January 31, 2000 and the purchase of the rights to the source code of
CuteFTP in January 1999. The Company also began providing additional
depreciation expense as a result of a change in accounting estimate for useful
lives within its Mexican subsidiaries. The Company also fully depreciated
approximately $165,000 of the Company's fixed assets for which it believes there
are no associated future benefits.

     Operating Loss.  The Company's operating loss increased approximately
$499,000 between quarters and increased as a percentage of revenues from 8% to
11%, due to higher cost of services and selling, general and administrative
expenses as a percentage of revenues, and increased depreciation and
amortization.

     Other Income (Expense).  Other income (expense) increased approximately
$224,000 between quarters. This increase was principally attributable to
additional debt discount expense associated with the Company's conversion of
convertible notes and a note payable during the quarter. Other increases in
interest expense are a result of increased indebtedness and capital leases.

     Preferred Dividends. During the second quarter of fiscal 2000, the Company
recorded approximately $634,000 of non-cash dividends related to cumulative
convertible preferred stock. In addition to cumulative dividends on its Series
A, Series B and Series C Preferred Stock, which are accrued at 10%, 6% and 6%,
respectively, per month the Company has recorded amortization related to

                                       17
<PAGE>

a discount or "beneficial conversion feature" associated with the issuance of
its various preferred stock issuances. The Company's preferred stock issuances
issued between March 1999 and December 1999 were approximately $6.3 million.

     Net loss. The net loss between quarters increased by approximately $1.3
million from $1.1 million to $2.4 million due primarily to increased
depreciation and amortization, increased interest expense and preferred stock
dividends.

Six Months Ended January 31, 2000 Compared to Six Months Ended January 31, 1999

     Operating revenues. Operating revenues increased approximately $1.8
million, or 10%, due to growth in the Company's carrier, integrated prepaid and
Internet e-commerce services. This increase was offset to some extent by the
decline in the Company's private network and postpaid services.

     Network management services increased approximately $2.0 million, or 18%.
This growth was principally due to the additional minutes processed for other
carriers during the quarter ended January 31, 2000. The Company processed
approximately 43.0 million minutes of traffic for other carriers during the six
months ended January 31, 1999, as compared to approximately 87.0 million minutes
during the six months ended January 31, 2000. While the volume of carrier
traffic will most likely increase as compared to previous years, the Company may
not be able to maintain this growth trend as the Company continues to increase
its focus on retail-based call services, which tend to be less volatile than
wholesale traffic. The Company's private network revenues declined from $2.3
million to $1.3 between periods due to the loss of customers upon expiration or
termination of their contracts. The Company has shifted its focus away from the
provision of these private network services to public traffic in the U.S.-
Mexican corridor.

     Call service revenues decreased approximately $1.1 million, or 18% between
periods.  The decline was principally attributable to lower volumes of operator-
assisted calls originating in Mexico and terminating in the U.S, new services
such as prepaid cellular being introduced into the market by the Company's
competitors, and Mexican cellular providers recently introducing the concept of
"calling party pays".  During the six months ended January 31, 2000, the Company
processed approximately 32,000 operator-assisted calls originating in Mexico and
terminating in the U.S. as compared to approximately 83,000 calls processed in
the six months ending January 31, 1999.  The Company now provides these services
almost exclusively from its own communication centers and payphones, due to the
added expenses associated with third party owned locations. As the Company
believes this call volume trend may continue, it has recently begun utilizing
the services of third-party owned operator centers to further reduce the cost of
providing these calls. Integrated prepaid services, calls processed in exchange
for cash without utilizing the Company's operator center, increased to $2.9
million from $2.6 million for the periods ended January 31, 2000 and January 31,
1999, respectively. The calls are paid for almost exclusively in pesos, and the
resulting revenues are translated to U.S. dollars in the accompanying
consolidated financial statements.  The average conversion rate of pesos to
dollars during the periods ended January 31, 1999 and January 31, 2000, was 10.0
and 9.4 respectively.  While call volumes increased slightly between periods,
the pesos generated converted to more U.S. dollars, period to period.

     The Company's Internet e-commerce services increased approximately
$877,000, or 75% between periods. This growth was due primarily to the increased
number of downloads of the Company's CuteFTP product between periods. Downloads
grew from nearly 1.2 million in the six

                                       18
<PAGE>

months ended January 31, 1999 to approximately 4.3 million in the six months
ended January 31, 2000. The increase in downloads has resulted in a
corresponding increase in the Company's revenues as downloads serve as the
primary driver of revenues in coming months as well as increasing the target
audience for banner advertisements.

     Cost of Services.  Cost of services increased approximately $2.3 million,
or 20%, between periods and increased as a percentage of revenues from 62% to
68%, between periods.  The increase in cost of services was principally
attributable to the increased volume of business handled by the Company as
discussed above. The increase in cost of sales, as a percentage of revenues, was
due primarily to the percentage of lower margin carrier services traffic
increasing from 48% to 58% of overall corporate revenues, period to period. The
resultant change in the Company's traffic mix led to an increase in the combined
telco operations cost of services from 65% to 75% for the period.

     Selling, General and Administrative (SG&A) Expense.  SG&A expenses
increased 7%, or approximately $440,000, between periods.  As a percentage of
revenues, these expenses remained relatively constant. The increase in SG&A was
primarily due to added SG&A costs at the Company's Internet e-commerce
subsidiary to support the introduction of new products into the market. SG&A
costs associated with the Company's telco businesses remained relatively flat
between periods due to cost reduction efforts and in spite of expenses incurred
with the completion of the Company's plan to consolidate its Mexico City and
Guadalajara operations into one office in Mexico City.

     Depreciation and Amortization.  Depreciation and amortization rose
approximately $928,000, or 66%, between periods and increased as a percentage of
revenues from 7% to 11%.  The increase was primarily related to purchases of
property, plant and equipment of approximately $1.4 million between January 31,
1999 and January 31, 2000 and the purchase of the rights to the source code of
CuteFTP in January 1999, The Company also began providing additional
depreciation expense as a result of a change in accounting estimate for useful
lives within its Mexican subsidiaries. Additionally, the Company fully
depreciated approximately $165,000 of its fixed assets for which it believes
there are no associated future benefits.

     Operating Loss.  The Company's operating loss increased approximately $1.7
million between periods and increased as a percentage of revenues from 5% to
13%, due to higher cost of services and increased depreciation and amortization.

     Other Income (Expense).  Other income (expense) increased approximately
$201,000 between periods. This increase was principally attributable to
additional debt discount expense associated with the Company's conversion of
convertible notes and a note payable in January 2000. Additional increases in
interest expense are a result of increased indebtedness and capital leases.

     Preferred Dividends. During the six months ending January 31, 2000, the
Company recorded approximately $1.9 million of non-cash dividends related to
cumulative convertible preferred stock. In addition to cumulative dividends on
its Series A, Series B and Series C Preferred Stock, which are accrued at 10%,
6% and 6%, respectively, per month the Company has recorded amortization related
to a discount or "beneficial conversion feature" associated with the issuance of
its various preferred stock issuances. The proceeds of the preferred stock
issuances were approximately $6.3 million.

     Net loss. The net loss for the six months ended January 31, 2000 increased
approximately $4.0 million to $5.7 million from the $1.7 million net loss for
the six months ended January 31, 1999. The

                                       19
<PAGE>

increased net loss was due primarily to increased selling, general and
administrative expenses, increased depreciation and amortization expense,
increased interest expense and the preferred stock dividends.

Liquidity and Capital Resources

     During the six-month period ended January 31, 2000, the Company generated
negative cash flows from operations of $515,000.  The amount of cash used in the
Company's operations is a result of the net loss incurred during the period, as
well as activities related to payments to vendors.  The Company has historically
operated with negative cash flows and negative working capital, and has sought
to fund those losses and deficits by completing private equity placements.

     For the six-month period ended January 31, 2000, the Company's net loss,
after adjustments for non-cash items (depreciation and amortization,
amortization of debt discount, deferred compensation and the provision for
losses on accounts receivable) was approximately $575,000.  Management of the
operating assets and liabilities, which consists mainly of collections on
accounts receivable and payments made on outstanding payables, produced positive
cash flows of approximately $60,000, resulting in the negative cash flows for
the period of $515,000.

     For the three-month period ended January 31, 2000, the Company's produced
positive income, after adjustments for the same non-cash items mentioned above,
of approximately $94,000.  However, management of its operating assets and
liabilities resulted in a net amount of cash being used of $1.1 million.  During
this period, the Company's accounts receivable balance increased approximately
$1.0 million due to increased business.  Although the increased business
translated to increased expenses during the period, the Company reduced its
payables balance by approximately $476,000 utilizing cash produced by private
equity issuances.  Primarily as a result of these activities, the Company used
approximately $959,000 million in cash in its operating activities during the
three months ended January 31, 2000.

     Until the Company is able to produce positive cash flows from operations on
a recurring basis, and reduce or eliminate its working capital deficit,
management will be faced with deciding whether to use available funds to pay
vendors and suppliers for services necessary for operations, to service its debt
requirements, or to purchase equipment to be used in the growth of the Company's
business.  Until then, the Company's operating activities may result in net cash
being used, or provided, during quarterly periods, regardless of the Company's
income statement results for the periods.

     During the six month period ended January 31, 2000, the Company received
net cash proceeds of $1.8 million from the issuance of preferred stock, and
$920,000 from the issuance of common stock as a result of warrant and option
exercises.   These funds were used to pay down outstanding payables balances as
mentioned above, to make payments on the Company's debt and capital lease
obligations, and to purchase approximately $688,000 in equipment used in the
Company's network operations.  The net result of the Company's operating,
investing and financing activities was an increase in cash during the period of
$284,000, and a working capital deficit as of January 31, 2000 of approximately
$3.9 million.  This represents a $3.0 million improvement over the Company's
working capital deficit of $6.9 million as of July 31, 1999 and a $6.4 million
improvement over the working capital deficit of $10.3 million as of October 31,
1999.

     Although the Company produced positive net cash flows during the six month
period ending January 31, 2000, the improvement in working capital was primarily
due to the conversion of

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<PAGE>

approximately $2.9 million in outstanding notes and accrued interest into common
stock of the Company which had been scheduled to mature in March 2000. As of
January 31, 2000, the Company has also classified approximately $1.9 of its
capital lease obligation to NTFC Capital Corporation ("NTFC") as long-term. This
obligation was classified as a current liability as of October 31, 1999.
Although the Company was in default of financial covenants related to revenues,
gross margins and EBITDA, the Company received a waiver from NTFC stating that
it waived the Company's compliance requirements as of those dates. Based upon
the Company's results before and after the period ended January 31, 2000, the
Company will most likely be in default of these same covenants at the end of its
next fiscal quarter, April 30, 2000. As such, the Company has requested that
NTFC review the Company's current business plan, including expected results and
capital requirements, in order to re-set the financial covenants applicable to
its capital lease obligation and prevent events of default from occurring on a
quarterly basis going forward. Based on discussions with NTFC, management
believes it is probable that NTFC will re-set the financial covenants such that
the Company will be in compliance as of April 30, 2000. NTFC is in the process
of reviewing this information, and the Company anticipates receiving the results
of this review prior to April 30, 2000. As such, the Company has classified its
obligation to NTFC as long-term. However, should the Company not receive revised
financial covenants from NTFC, it is likely that the Company will be required to
classify its entire obligation to NTFC as current as of April 30, 2000.

     Until the Company is able to produce positive cash flows from operations on
a recurring basis, it will need to continue to seek outside sources of funds to
continue operations on a long-term basis.  Subsequent to January 31, 2000, the
Company has raised an additional $4,000,000 in private placements of preferred
stock; $3,000,000 of 6% Series D Preferred Stock and an additional $1,000,000 of
10% Series A Preferred Stock.

     On February 17, 2000, the Company announced plans to capitalize on the
value of its wholly owned subsidiary, GlobalSCAPE, Inc. by spinning out a
portion of its ownership in GlobalSCAPE to its shareholders, and offering
additional GlobalSCAPE shares to ATSI shareholders and the GlobalSCAPE customer
base. Shareholders of ATSI will be allowed to participate in these transactions,
which are designed to accomplish three goals: 1) To increase ATSI shareholder
value; 2) to raise funds necessary for further growth at GlobalSCAPE, and 3) to
raise funds necessary for further growth at ATSI. Management anticipates that
the transaction will provide cash to ATSI to reduce or eliminate its working
capital deficit. In addition, the transactions should also provide an ongoing
benefit to ATSI, as it will realize a stepped-up benefit through its retained
ownership in GlobalSCAPE, enhancing its own financial position and its ability
to act on or finance opportunities going forward. However, depending on the
percentage of its ownership to be retained after the spin-off and offering,
GlobalSCAPE will contribute less profits and cash flows to ATSI.  Because
GlobalSCAPE currently contributes significantly to the Company's consolidated
EBITDA results, the Company expects its consolidated operating and cash flow
results to decline after the spin-off and offering.

     In the near term, the Company must continue to manage its costs of
providing services and overhead costs as it begins focusing on optimizing use of
its network.  The Company has applied for a long distance concession in Mexico
which, if obtained, the Company believes will eventually allow it to
significantly reduce its cost of transporting services. In order for it to
significantly reduce costs with the concession, the Company would need to
purchase a significant amount of hardware and software, allowing it to expand
and operate its own network in Mexico.  The Company believes that these capital
expenditures may approximate $60 million over a five-year period.  Should the
Company be granted this concession it would likely need to raise these funds
through additional debt and/or equity capital. While

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<PAGE>


the Company believes that it would be able to raise these funds upon the
granting of a concession, it can give no assurance that it will be able to do
so.

     Until the Company is able to produce positive cash flows from operations in
an amount sufficient to meet its debt service and capital expenditure
requirements, it must be able to access debt and/or equity capital to assist it
in doing so, although no assurance may be given that it will be able to do so.
In an effort to meet its financial needs going forward, the Company has engaged
the investment banking firm of Gerard, Klauer Mattison & Co.  ("GKM").  GKM will
assist the Company in finding and securing financial and strategic
relationships. While the Company will continue to work with GKM in forming
medium and long-term financing solutions, it may be necessary for the Company to
continue to access debt and/or equity capital in the near-term.

Inflation/Foreign Currency

     Inflation has not had a significant impact on the Company's operations.
With the exception of integrated prepaid revenues from the Company's
communication centers and payphones, almost all of the Company's revenues are
generated and collected in U.S. dollars. Integrated prepaid services from the
Company's communication centers and payphones are provided at the time of the
call in exchange for cash payment, so the Company does not maintain receivables
on its books that are denominated in pesos. In an effort to reduce foreign
currency risk, the Company attempts to convert pesos collected to U.S. dollars
quickly and attempts to maintain minimal cash balances denominated in pesos.
Some expenses related to certain services provided by the Company are incurred
in foreign currencies, primarily Mexican pesos. The devaluation of the Mexican
peso over the past several years has not had a material adverse effect on the
Company's financial condition or operating results.

PART II OTHER INFORMATION

Item 2 Change in Securities and Use of Proceeds

     The Company's registration statement on form S-3, File No. 333-84115, on
which the Company registered 3,198,054 shares of common stock, became effective
on August 19, 1999.  This common stock was issuable under the terms of the
Company's 6% Series B Cumulative Convertible Preferred Stock and a warrant for
the purchase of 50,000 shares of common stock both issued to The Shaar Fund on
July 2, 1999 and under the terms of two warrants for the purchase of common
stock issued to Gary Wright and Rocky Dazzo each on November 6, 1998.

     The warrants held by Gary Wright and Rocky Dazzo expired before they were
exercised.

     The Shaar Fund converted all of its series B preferred stock into common
stock between October 5, 1999 and January 24, 2000 resulting in the issuance of
2,541,734 shares of common stock.  The Company also issued The Shaar Fund 29,368
shares and 12,372 shares, respectively of common stock in payment of dividends
due on the series B preferred stock on September 29, 1999 and December 31, 1999,
respectively.  The Shaar Fund exercised its warrant for 50,000 shares of common
stock on February 10, 2000.  The Shaar Fund has informed the Company that it has
sold all of the shares of common stock resulting from the conversion of the
series B preferred stock, the issuance of dividends on the series B preferred
stock, and the exercise of the warrant.

The Company did not receive any of the proceeds of the sale of the common stock
registered on this

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<PAGE>


Form S-3. The Company received $2,000,000 of proceeds upon the issuance of the
series B preferred stock on July 2, 1999. The Company incurred expenses in
connection with the issuance of the series B preferred stock and registration of
the underlying common stock as follows (approximate amounts):


         Legal fees:                 $ 50,000.00
         Registration fees:            11,677.55
         Printing & Miscellaneous:      5,000.00
         Placement Fee:               200,000.00 (plus warrant described below)
         ---------------------------------------
         Total:                       266,677.55


     The Company's placement fee to Corporate Capital Management LLC for
services in connection with the series B preferred stock consisted of the
$200,000 cash listed above and a warrant for the purchase of 50,000 shares of
the Company's common stock at an exercise price of $1.25 per share.  None of
these expenses were paid directly or indirectly to any officer or director or
affiliate of the Company, or any person owning ten (10) percent or more of the
Company's common stock, or any of their associates.

     The Company used the $1,734,000 remaining after payment of expenses for
working capital purposes.   Of this amount, $14, 855.71 was paid to two
companies controlled by the Company's director, Tomas Revesz as fees due under
services agreements.  No other proceeds were paid directly or indirectly to any
officer or director or affiliate of the Company, or any person owning ten (10)
percent or more of the Company's common stock, or any of their associates.

Item 6  Exhibits and Reports on Form 8-K

     (a)  Exhibits:

     The exhibits listed below are filed as part of this report.

Exhibit
Number
------

  11      Computation of Earnings per Share (Exhibit to Form 10-Q
          filed March 16, 2000)

  27      Financial Data Schedule (Exhibit to Form 10-Q filed March 16,
          2000)

     (b)  Current Reports on Form 8-K.

          None.

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                                   SIGNATURE


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


                    AMERICAN TELESOURCE INTERNATIONAL INC.
                                 (Registrant)



Date:   April 13, 2000        By:        /s/ H. Douglas Saathoff
                                         -----------------------
                              Name:      H. Douglas Saathoff
                              Title:     Chief Financial Officer

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