----

**UNITED        STATES **

**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        D.C. 20549**

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**FORM        10-QSB**

**(Mark        One**

| **x**  | **QUARTERLY                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                    ACT OF                    1934**For                    the quarterly period ended October 31, 2005                                       |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                         |
| **o**  | **TRANSITION                    REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                    ACT OF                    1934**For                    the transition period from _____________ to                    _________________ |

**ATSI        COMMUNICATIONS, INC.**

| **Nevada**(State                    or Other Jurisdiction of Incorporation or Organization) | **74-2849995**(IRS                    Employer Identification                    No.) |
|---------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|

| **8600                    Wurzbach, Suite 700W****San                    Antonio, Texas 78240**(Address                    of Principal Executive Offices) |
|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                       |
| **(210)                    614-7240**(Issuer’s                    Telephone Number, Including Area                    Code)                          |

**x**

**o**

**o**

**x**

| **Class**                                | **Outstanding                  As Of December 11, 2005** |
|------------------------------------------|----------------------------------------------------------|
|                                     |                                                     |
| Common                  Stock, $.001 par | 13,142,289                                               |

**o**

**x**

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**ATSI        COMMUNICATIONS, INC.**

**AND        SUBSIDIARIES**

**QUARTERLY        REPORT ON FORM 10-QSB**

**FOR        THE QUARTER ENDED OCTOBER 31, 2005**

**INDEX**

| **PART                    I. FINANCIAL INFORMATION**                                                                                                | **Page** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|----------|
|                                                                                                                                                |     |
| Item                    1. Financial Statements (Unaudited)                                                                                         |     |
|                                                                                                                                                |     |
| Consolidated                    Balance Sheets as of October 31, 2005 and July 31, 2005                                                             | 1        |
| Consolidated                    Statements of Operations for the Three Months                                                                       |     |
| Ended                    October 31, 2005 and 2004                                                                                                  | 2        |
| Consolidated                    Statements of Comprehensive Loss for the Three Months                                                               |     |
| Ended                    October 31, 2005 and 2004                                                                                                  | 3        |
| Consolidated                    Statements of Cash Flows for the Three Months Ended October 31,                    2005 and                    2004 | 4        |
| Notes                    to Consolidated Financial Statements                                                                                       | 5        |
|                                                                                                                                                |     |
| Item                    2. Management’s Discussion and Analysis of Financial Condition and Results                    of Operations           | 7        |
|                                                                                                                                                |     |
| Item                    3. Controls and Procedures                                                                                             | 12       |
|                                                                                                                                                |     |
| **PART                    II. OTHER INFORMATION**                                                                                                   |     |
|                                                                                                                                                |     |
| Item                    1. Legal Proceedings                                                                                                        | 13       |
|                                                                                                                                                |     |
| Item                    2. Unregistered Sales of Equity Securities and use of                    proceeds                                           | 13       |
|                                                                                                                                                |     |
| Item                    3. Default upon senior securities                                                                                           | 14       |
|                                                                                                                                                |     |
| Item                    6. Exhibits                                                                                                                 | 14       |

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**PART          1. FINANCIAL INFORMATION **

**ITEM            1. FINANCIAL STATEMENTS**

| ATSI                          COMMUNICATIONS, INC.                |   |
|-------------------------------------------------------------------|--------|
| AND                          SUBSIDIARIES                         |   |
| CONSOLIDATED                          BALANCE SHEET               |   |
| (in                          thousands, except share information) |   |
| (unaudited)                                                       |   |

|                                                                                                                                                                                  |   |   | Oct                            31, |   |   | July                            31, |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------------------------------|--------|--------|-------------------------------------|--------|
|                                                                                                                                                                                  |   |   | 2005                               |   |   | 2005                                |   |
|                                                                                                                                                                                  |   |   |                               |   |   |                                |   |
| ASSETS                                                                                                                                                                                |   |   |                               |   |   |                                |   |
| CURRENT                            ASSETS:                                                                                                                                            |   |   |                               |   |   |                                |   |
| Cash                            and cash equivalents                                                                                                                                  |   | $      | 3                                  |   | $      | 29                                  |   |
| Accounts                            receivable                                                                                                                                        |   |   | 229                                |   |   | 170                                 |   |
| Prepaid                            & other current assets                                                                                                                         |   |   | 28                                 |   |   | 44                                  |   |
| Total                            current assets                                                                                                                                       |   |   | 260                                |   |   | 243                                 |   |
|                                                                                                                                                                                  |   |   |                               |   |   |                                |   |
| PROPERTY                            AND EQUIPMENT                                                                                                                                     |   |   | 231                                |   |   | 228                                 |   |
| Less                            - Accumulated depreciation and amortization                                                                                                           |   |   | (112                               | )      |   | (90                                 | )      |
| Net                            property and equipment                                                                                                                                 |   |   | 119                                |   |   | 138                                 |   |
| Total                            assets                                                                                                                                               |   | $      | 379                                |   | $      | 381                                 |   |
|                                                                                                                                                                                  |   |   |                               |   |   |                                |   |
| LIABILITIES                            AND STOCKHOLDERS' DEFICIT                                                                                                                      |   |   |                               |   |   |                                |   |
| CURRENT                            LIABILITIES:                                                                                                                                       |   |   |                               |   |   |                                |   |
| Accounts                            payable                                                                                                                                           |   | $      | 616                                |   | $      | 608                                 |   |
| Accrued                            liabilities                                                                                                                                        |   |   | 949                                |   |   | 986                                 |   |
| Current                            portion of obligation under capital leases                                                                                                         |   |   | 3                                  |   |   | 3                                   |   |
| Notes                            payable                                                                                                                                              |   |   | 104                                |   |   | 104                                 |   |
| Notes                            payable, related party                                                                                                                               |   |   | 16                                 |   |   | 16                                  |   |
| Convertible                            debentures                                                                                                                                     |   |   | 275                                |   |   | 275                                 |   |
| Series                            D Cumulative Preferred Stock, 3,000 shares authorized,                            742 shares issued                            and outstanding      |   |   | 1,193                              |   |   | 1,182                               |   |
| Series                            E Cumulative Preferred Stock, 10,000 shares authorized,                            1,170 shares                            issued and outstanding   |   |   | 1,362                              |   |   | 1,345                               |   |
| Liabilities                            from discontinued operations, net of assets                                                                                                    |   |   | -                                  |   |   | 1,152                               |   |
| Total                            current liabilities                                                                                                                                  |   |   | 4,518                              |   |   | 5,671                               |   |
|                                                                                                                                                                                  |   |   |                               |   |   |                                |   |
| LONG-TERM                            LIABILITIES:                                                                                                                                     |   |   |                               |   |   |                                |   |
| Notes                            payable                                                                                                                                              |   |   | 500                                |   |   | 500                                 |   |
| Obligation                            under capital leases, less current portion                                                                                                      |   |   | 8                                  |   |   | 9                                   |   |
| Other                                                                                                                                                                                 |   |   | 7                                  |   |   | 8                                   |   |
| Total                            long-term liabilities                                                                                                                                |   |   | 515                                |   |   | 517                                 |   |
| Total                            liabilities                                                                                                                                          |   |   | 5,033                              |   |   | 6,188                               |   |
|                                                                                                                                                                                  |   |   |                               |   |   |                                |   |
| STOCKHOLDERS'                            DEFICIT:                                                                                                                                     |   |   |                               |   |   |                                |   |
| Preferred                            stock, $0.001 par value, 10,000,000 shares authorized,                                                                                           |   |   |                               |   |   |                                |   |
| Series                            A Cumulative Convertible Preferred Stock, 50,000 shares                            authorized, 3,750                            shares              |   |   |                               |   |   |                                |   |
| issued                            and outstanding                                                                                                                                     |   |   | -                                  |   |   | -                                   |   |
| Series                            H Convertible Preferred Stock, 16,000,000 shares authorized,                            13,769,866                            and 13,912,372 shares |   |   |                               |   |   |                                |   |
| issued                            and outstanding, respectively                                                                                                                       |   |   | 14                                 |   |   | 14                                  |   |
| Common                            stock, $0.001, 150,000,000 shares authorized, 11,557,883                            and 10,397,222                            shares                |   |   |                               |   |   |                                |   |
| issued                            and outstanding, respectively                                                                                                                       |   |   | 12                                 |   |   | 10                                  |   |
| Additional                            paid in capital                                                                                                                                 |   |   | 72,279                             |   |   | 71,916                              |   |
| Accumulated                            deficit                                                                                                                                        |   |   | (76,960                            | )      |   | (78,249                             | )      |
| Other                            comprehensive income                                                                                                                                 |   |   | 1                                  |   |   | 502                                 |   |
| Total                            stockholders' deficit                                                                                                                                |   |   | (4,654                             | )      |   | (5,807                              | )      |
| Total                            liabilities and stockholders' deficit                                                                                                                |   | $      | 379                                |   | $      | 381                                 |   |
|                                                                                                                                                                                  |   |   |                               |   |   |                                |   |

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|                                                                                                                                                                          |   | Three                      months ended October 31, |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|------------|
|                                                                                                                                                                          |   | 2005                                                |       | 2004 |   |
| OPERATING                      REVENUES:                                                                                                                                      |   |                                                |       |   |   |
|      Carrier                      services                                                                                                           |   | $                                                   | 2,313      |   | $ | 769 |   |
|      Network                      services                                                                                                           |   |                                                | 9          |   |   | 73 |   |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
|      Total                      operating revenues                                                                                                   |   |                                                | 2,322      |   |   | 842 |   |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| OPERATING                      EXPENSES:                                                                                                                                      |   |                                                |       |   |   |   |   |
|      Cost                        of services (exclusive of depreciation and amortization,                        shown                        below) |   |                                                | 2,240      |   |   | 772 |   |
|      Selling,                      general and administrative                                                                                        |   |                                                | 153        |   |   | 250 |   |
|      Legal                      and professional fees                                                                                                |   |                                                | 27         |   |   | 239 |   |
|      Non-cash                      issuance of common stock and warrants for services                                                                |   |                                                | 48         |   |   | — |   |
|      Non-cash                      stock-based compensation, employees                                                                               |   |                                                | 180        |   |   | — |   |
|      Depreciation                      and amortization                                                                                              |   |                                                | 22         |   |   | 23 |   |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
|      Total                      operating expenses                                                                                                   |   |                                                | 2,670      |   |   | 1,284 |   |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| OPERATING                      (LOSS)                                                                                                                                         |   |                                                | (348       | ) |   | (442 | ) |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| OTHER                      INCOME (EXPENSE):                                                                                                                                  |   |                                                |       |   |   |   |   |
|      Debt                      forgiveness income                                                                                                    |   |                                                | —    |   |   | 460 |   |
|      Gain                      on disposal of investment                                                                                             |   |                                                | 1,652      |   |   | — |   |
|      Interest                      expense                                                                                                           |   |                                                | (16        | ) |   | (31 | ) |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
|      Total                      other income (expense), net                                                                                          |   |                                                | 1,636      |   |   | 429 |   |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| NET                      INCOME (LOSS)                                                                                                                                        |   |                                                | 1,288      |   |   | (13 | ) |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| LESS:                      PREFERRED DIVIDENDS                                                                                                                                |   |                                                | (41        | ) |   | (38 | ) |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| NET                      INCOME (LOSS) TO COMMON STOCKHOLDERS                                                                                                                 |   | $                                                   | 1,247      |   |   | ($51 | ) |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| BASIC                      INCOME (LOSS) PER SHARE                                                                                                                            |   | $                                                   | 0.11       |   |   | ($0.01 | ) |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| DILUTED                      INCOME (LOSS) PER SHARE                                                                                                                          |   | $                                                   | 0.04       |   |   | ($0.01 | ) |
|                                                                                                                                                                          |   |                                                |       |   |   |   |   |
| WEIGHTED                        AVERAGE COMMON SHARES OUTSTANDING                                                                                                             |   |                                                | 10,945,338 |   |   | 3,598,383 |   |

----

|                                                                                 |   | Three                      months ended October 31, |   |
|--------------------------------------------------------------------------------------|--------|-----------------------------------------------------|--------|
|                                                                                 |   | 2005                                                |   | 2004 |   |
| Net                      income (loss) to common stockholders                        |   | $                                                   | 1,247  |   |   | ($51 | ) |
|                                                                                 |   |                                                |   |   |   |   |   |
|     Foreign                      currency translation adjustment |   |                                                | (501   | ) |   | — |   |
|                                                                                 |   |                                                |   |   |   |   |   |
| Comprehensive                      income (loss) to common stockholders              |   | $                                                   | 746    |   |   | ($51 | ) |

----

|                                                                                                                                           |   | Three                      months ended October 31, |    |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|
|                                                                                                                                           |   | 2005                                                |    | 2004 |   |
| CASH                      FLOWS FROM OPERATING ACTIVITIES:                                                                                     |   |                                                |    |   |   |
| NET                      INCOME (LOSS)                                                                                                         |   | $                                                   | 1,288   |   |   | ($13 | ) |
| Adjustments                      to net income (loss):                                                                                         |   |                                                |    |   |   |   |   |
|      Gain                      on disposal of investment                                                              |   |                                                | (1,653  | ) |   | — |   |
|      Debt                      forgiveness income                                                                     |   |                                                | — |   |   | (460 | ) |
| Adjustments                      to reconcile net loss to cash used in operating                      activities:                              |   |                                                |    |   |   |   |   |
|      Depreciation                      and amortization                                                               |   |                                                | 22      |   |   | 23 |   |
|      Non-cash                      issuance of stock grants and options, employees                                    |   |                                                | 180     |   |   | — |   |
|      Non-cash                      issuance of common stock and warrants for services                                 |   |                                                | 52      |   |   | 40 |   |
|      Changes                      in operating assets and liabilities:                                                |   |                                                |    |   |   |   |   |
|      Accounts                      receivable                                                                         |   |                                                | (59     | ) |   | (131 | ) |
|      Prepaid                      expenses and other                                                                  |   |                                                | 15      |   |   | (20 | ) |
|      Accounts                      payable                                                                            |   |                                                | 67      |   |   | 90 |   |
|      Accrued                      liabilities                                                                         |   |                                                | 20      |   |   | 105 |   |
| Net                      cash used in operating activities                                                                                     |   |                                                | (68     | ) |   | (366 | ) |
|                                                                                                                                           |   |                                                |    |   |   |   |   |
| CASH                      FLOWS FROM INVESTING ACTIVITIES:                                                                                     |   |                                                |    |   |   |   |   |
|       Purchases                      of property & equipment                                                 |   |                                                | (3      | ) |   | (6 | ) |
|       Acquisition                      of business                                                               |   |                                                | — |   |   | (8 | ) |
| Net                      cash used in investing activities                                                                                     |   |                                                | (3      | ) |   | (14 | ) |
|                                                                                                                                           |   |                                                |    |   |   |   |   |
| CASH                      FLOWS FROM FINANCING ACTIVITIES:                                                                                     |   |                                                |    |   |   |   |   |
|       Proceeds                      from notes payable                                                           |   |                                                | — |   |   | 286 |   |
|       Payments                      on notes payable                                                             |   |                                                | — |   |   | 14 |   |
|       Proceeds                      from the exercise of warrants                                                |   |                                                | 46      |   |   | — |   |
|       Principal                      payments on capital lease obligation                                        |   |                                                | (1      | ) |   | — |   |
| Net                      cash provided by financing activities                                                                                 |   |                                                | 45      |   |   | 300 |   |
| DECREASE                      IN CASH                                                                                                          |   |                                                | (26     | ) |   | (80 | ) |
| CASH                      AND CASH EQUIVALENTS, beginning of period                                                                            |   |                                                | 29      |   |   | 94 |   |
| CASH                      AND CASH EQUIVALENTS, end of period                                                                                  |   | $                                                   | 3       |   | $ | 14 |   |
|                                                                                                                                           |   |                                                |    |   |   |   |   |
| SUPPLEMENTAL                      DISCLOSURES:                                                                                                 |   |                                                |    |   |   |   |   |
|      Cash                      paid for interest                                                                      |   |                                                | — |   |   | — |   |
|      Cash                      paid for income taxes                                                                  |   |                                                | — |   |   | — |   |
|                                                                                                                                           |   |                                                |    |   |   |   |   |
| NON-CASH                      TRANSACTIONS                                                                                                     |   |                                                |    |   |   |   |   |
|      Issuance                      of common stock for conversion of debt                                             |   | $                                                   | 58      |   | $ | 733 |   |
|      Issuance                      of common stock for purchase of fixed & Intangible                      assets |   |                                                | — |   |   | 24 |   |
|      Conversion                      of preferred stock to common stock                                               |   |                                                | 17      |   |   | 206 |   |

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**ATSI            COMMUNICATIONS, INC.**

**AND            SUBSIDIARIES**

**NOTES            TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE            1 - BASIS OF PRESENTATION**

**NOTE            2 - STOCK BASED COMPENSATION**

|                                                                                           |   | Three                      months ended October 31, |      |
|------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|-----------|
|                                                                                           |   | 2005                                                |      | 2004 |   |
| Net                      income (loss) to common                                               |   |                                                |      |   |   |
| stockholders,                      as reported                                                 |   | $                                                   | 1,247,000 |   |   | ($51,000 | ) |
| Add:                        stock                      based compensation determined |   |                                                |      |   |   |   |   |
| under                      intrinsic value based method                                        |   |                                                | —   |   |   | — |   |
| Less:                       stock based compensation determined                           |   |                                                |      |   |   |   |   |
| under                      fair value based method                                             |   |                                                | (281,499  | ) |   | — |   |
|                                                                                           |   |                                                |      |   |   |   |   |
| Pro                      forma net income (loss) to common stockholders                        |   | $                                                   | 965,501   |   |   | ($51,000 | ) |
|                                                                                           |   |                                                |      |   |   |   |   |
| Basic                      net income (loss) per common share:                                 |   |                                                |      |   |   |   |   |
| As                      reported                                                               |   | $                                                   | 0.11      |   |   | ($0.01 | ) |
| Pro                      forma                                                                 |   | $                                                   | 0.09      |   |   | ($0.01 | ) |
|                                                                                           |   |                                                |      |   |   |   |   |
| Diluted                      net income (loss) per common share:                               |   |                                                |      |   |   |   |   |
| As                      reported                                                               |   | $                                                   | 0.04      |   |   | ($0.01 | ) |
| Pro                      forma                                                                 |   | $                                                   | 0.03      |   |   | ($0.01 | ) |

----

|                                                   |   |  Three                        Months Ended October 31, |                           |
|--------------------------------------------------------|--------|-------------------------------------------------------------|--------------------------------|
|                                                   |   |  2005                                                  |                           | 2004 |   |
| Expected                        dividends yield        |   |                                                        | 0.00%                          |   |   | 0.00% |   |
| Expected                        stock price volatility |   |                                                        | 139%                           |   |   | 0% |   |
| Risk-free                        interest rate         |   |                                                        | 4.42%                          |   |   | 0% |   |
| Expected                        life of options        |   |                                                        | 3                        years |   |   | 3                        years |   |

**NOTE            3 - SETTLEMENT OF UNRECORDED NOTE RECEIVABLE **

**NOTE            4 - GAIN ON DISPOSAL OF INVESTMENT **

----

**NOTE            5 - NOTES PAYABLE**

**NOTE            6 - SUBSEQUENT EVENTS**
** **

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

*SPECIAL            NOTE: This Quarterly Report on Form 10-QSB contains “forward-looking statements”            within the meaning of Section 27A of the Securities Act of 1933, as amended            and            Section 21E of the Securities and Exchange Act of 1934, as amended. “Forward            looking statements” are those statements that describe management’s beliefs and            expectations about the future. We have identified forward-looking statements            by            using words such as “anticipate,”“believe,”“could,”“estimate,”“may,”“expect,”            and “intend.” Although we believe these expectations are reasonable, our            operations involve a number of risks and uncertainties. Therefore, these            types            of statements may prove to be incorrect. *

**General**

*Carrier            Services: *

*Network            Services: *
* *

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*Communication            Services:*

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**Results            of Operations **

|                                                                                                                                            |   | Three                      Months Ended October 31, |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|---------|
|                                                                                                                                            |   | 2005                                                |    | 2004 |   |
|                                                                                                                                            |   |  $                                             |    | % |   | $ |   | % |   |
| Operating                      revenues                                                                                                         |   |                                                |    |   |   |   |   |   |   |
| Carrier                      services                                                                                                           |   | $                                                   | 2,313   |   |   | 100 | % | $ | 769 |   |   | 91 | % |
| Network                      services                                                                                                           |   |                                                | 9       |   |   | 0 | % |   | 73 |   |   | 9 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Total                      operating revenues                                                                                                   |   |                                                | 2,322   |   |   | 100 | % |   | 842 |   |   | 100 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Cost                        of services (Exclusive of depreciation and amortization,                        shown                        below) |   |                                                | 2,240   |   |   | 96 | % |   | 772 |   |   | 92 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Gross                      Margin                                                                                                               |   |                                                | 82      |   |   | 4 | % |   | 70 |   |   | 8 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Selling,                      general and administrative expense                                                                                |   |                                                | 153     |   |   | 7 | % |   | 250 |   |   | 30 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Legal                      and professional fees                                                                                                |   |                                                | 27      |   |   | 1 | % |   | 239 |   |   | 28 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Non-cash                      issuance of common stock and warrants for services                                                                |   |                                                | 48      |   |   | 2 | % |   | 0 |   |   | 0 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Non-cash                      stock-based compensation, employees                                                                               |   |                                                | 180     |   |   | 8 | % |   | — |   |   | 0 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Depreciation                      and amortization                                                                                              |   |                                                | 22      |   |   | 1 | % |   | 23 |   |   | 3 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Operating                      loss                                                                                                             |   |                                                | (348    | ) |   | -15 | % |   | (442 | ) |   | -52 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Debt                      forgiveness income                                                                                                    |   |                                                | — |   |   | 0 | % |   | 460 |   |   | 0 | % |
|                                                                                                                                            |   |                                                |    |   |   |   |   |   |   |   |   |   |   |
| Gain                      on disposal of investment                                                                                             |   |                                                | 1,652   |   |   | 71 | % |   | — |   |   | 0 | % |
|                                                                                                                                            |   |                                                |    |   |   |   |   |   |   |   |   |   |   |
| Interest                      expense                                                                                                           |   |                                                | (16     | ) |   | -1 | % |   | (31 | ) |   | -4 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Net                      income (loss)                                                                                                          |   |                                                | 1,288   |   |   | 55 | % |   | (13 | ) |   | -2 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Less:                      preferred stock dividends                                                                                            |   |                                                | (41     | ) |   | -2 | % |   | (38 | ) |   | -5 | % |
|                                                                                                                                            |   |                                                |         |   |   |  |   |   |  |   |   |  |   |
| Net                        income (loss) applicable to common                        stockholders                                               |   | $                                                   | 1,247   |   |   | 54 | % |   | ($51 | ) |   | -6 | % |

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**Three            Months ended October 31, 2005 Compared to Three Months ended October            31,            2004**

*Operating            Revenues*

*ost            of Services. (Exclusive of depreciation and amortization)*

*Selling,            General and Administrative (SG&A) Expenses*

*Legal            and professional Fees*

*Non-cash            issuance of common stock and warrants for services*

*Non-cash            stock-based compensation, employees*

----

*Depreciation            and Amortization*

*Operating            Loss*

*Debt            forgiveness income. *

*Gain            on disposal of Investment*

*Other            Income (expense)*

*Preferred            Stock Dividends*

*Net            income (loss) to Common Stockholders*

**Liquidity            and Capital Resources**

*Cash            Position:*

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| ·   | $103,454                      owed to Attorneys for legal services rendered during fiscal                      2004. |
|--------------------|----------------------------------------------------------------------------------------------------------------------|

| ·   | $1,193,000                      associated with the Series D Cumulative preferred stock. Of                      this balance,                      $942,000 is associated with the full redemption of this security                      and                      $251,000 is related to the accrued dividends as of October                      31,                      2005. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | $1,362,000                      associated with the Series E Cumulative preferred stock. Of                      this balance,                      $1,058,000 is associated with the full redemption of this security                      and                      $304,000 is related to the accrued dividends as of October                      31, 2005.                      During the fiscal year ended July 31, 2003, the Company was                      de-listed from                      AMEX and according to the terms of the Series E Cumulative                      preferred stock                      Certificate of Designation, if the Company fails to maintain                      a listing on                      NASDAQ, NYSE or AMEX the Series E preferred stockholder could                      request a                      mandatory redemption of the total outstanding preferred stock.                      As of the                      date of this filing we have not received such redemption                      notice.                      On                      October 31, 2002, we filed a lawsuit in the United States District                      Court                      for the Southern District Court of New York against several                      individuals                      and financial institutions, including the holders of our Series                      D and E                      Redeemable Preferred Stock, for, among other things, stock                      fraud and                      manipulation. On February 25, 2005, Judge Lewis A. Kaplan issued                      a                      memorandum opinion and order dismissing the complaint as to                      all defendants                      with prejudice. We plan to appeal that decision once a final                      judgment has                      been entered. On July 9, 2004, we filed a separate but related                      lawsuit in                      the same court against Sam Levinson and Uri Wolfson. On April                      27, 2005,                      the court entered a final judgment dismissing that action with                      prejudice                      based on the February 25, 2005 decision in the first action.                      On May 25,                      2005, we appealed the dismissal of the second action to the                      United States                      Court of Appeals for the Second Circuit. On September 9, 2005                      we appealed                      the dismissal of the first action to the United States Court                      of Appeals                      for the Second Circuit. Our attorneys are also in the process                      of                      investigating whether any other institutions participated in                      the                      manipulation of the company's stock and to advise us whether                      to pursue                      other legal |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Ongoing            operations**

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**ITEM            3. CONTROLS AND PROCEDURES**

**PART            II. OTHER INFORMATION**

**ITEM            1. LEGAL PROCEEDINGS**

----

**ITEM            2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF            PROCEEDS**

**ITEM            3. DEFAULTS UPON SENIOR SECURITIES**

| Series                      A Cumulative Preferred Stock |   | $      | 222,000 |   |
|----------------------------------------------------------|--------|--------|---------|--------|
| Series                      D Cumulative Preferred Stock |   |   | 251,000 |   |
| Series                      E Cumulative Preferred Stock |   |   | 305,000 |   |
| TOTAL                                                    |   | $      | 778,000 |   |

**ITEM            6. EXHIBITS **

|   | (a) | Exhibits:                        The following documents are filed as exhibits to this                        report. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------|

|   | **Exhibit                          Number** | **Description**                                                                                                                                                                                                                                                                    |
|--------|---------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 4.1                                    | Agreement                          to Extend Promissory Note dated December 1, 2005 between                          ATSI                          Communications, Inc. and Franklin, Cardwell & Jones,                          PC.                                           |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 4.2                                    | Secured                          Promissory Note and Security Agreement dated November 4,                          2005 between ATSI                          Communications, Inc. and CSI Business Finance, Inc.                                                                  |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 10.1                                   | Confidential                          Settlement Agreement and Mutual release dated October 31,                          2005 between                          ATSI Communications, Inc. and Telemarketing de Mexico S.A                          de                          C.V. |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 10.2                              | Stock                          Purchase Agreement dated October 15, 2005 between ATSI                          Communications,                          Inc. and Alejandro Sanchez Guzman (Sale of ATSIMex Personal                          S.A de                          C.V.) |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 10.3                                   | Factoring                          Agreement dated November 4, 2005 between ATSI Communications,                          Inc. and CSI                          Business Finance, Inc.                                                                                             |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 31.1                                   | Certification                          of our President and Chief Executive Officer, under Section                          302 of the                          Sarbanes-Oxley Act of 2002.                                                                                        |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 31.2                                        | Certification                          of our Corporate Controller and Principal Financial Officer,                          under Section                          302 of the Sarbanes-Oxley Act of 2002.                                                                         |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 32.1                                        | Certification                          of our President and Chief Executive Officer, under Section                          906 of the                          Sarbanes-Oxley Act of 2002.                                                                                        |
|   |                                        |                                                                                                                                                                                                                                                                               |
|   | 32.2                                   | Certification                          of our Corporate Controller and Principal Financial Officer,                          under Section                          906 of the Sarbanes-Oxley Act of                          2002.                                                |

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**SIGNATURE**

|                                            |   |                                                                                                                                                                             |                                                                                                |   |
|-------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|--------|
|                                       |   | **ATSI                      COMMUNICATIONS, INC**.                   (Registrant) |                                                                                                |
|                                            |   |                                                                                                                                                                             |                                                                                                |
| Date: December                    15, 2005 |   | By:                                                                                                                                                                    | /s/ Arthur                    L. Smith                                                         |   |
|                                            |   | Name:Title:                                                                                                                                                                      | Arthur L. Smith President                        and Chief                        Executive Officer |   |

| Date: December                      15, 2005 |   | By:   | /s/ Antonio                      Estrada                                                                                                   |   |
|---------------------------------------------------|--------|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                              |   | Name:Title:     | Antonio Estrada Corporate                        Controller(Principal                          Accounting and Principal Financial Officer) |   |
|                                              |   |            |                                                                                                                                            |   |

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