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


                                    FORM 10-Q

(MARK ONE)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the quarterly period ended January 31, 2004
                                       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 1-15687

                            ATSI COMMUNICATIONS, 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.)

      8600 WURZBACH ROAD, SUITE 700W
            SAN ANTONIO, TEXAS                              78240
 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                 (ZIP CODE)

                                 (210) 614-7240
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes     No  X
                                               ---    ---

     THERE WERE 103,655,190 SHARES OF COMMON STOCK OUTSTANDING AT MARCH 15,
2004.


<PAGE>
<TABLE>
<CAPTION>
                                    ATSI COMMUNICATIONS, INC.
                                         AND SUBSIDIARIES

                                  QUARTERLY REPORT ON FORM 10-Q
                              FOR THE QUARTER ENDED JANUARY 31, 2004

                                              INDEX

PART I.   FINANCIAL INFORMATION                                                              Page
                                                                                             ----
<S>       <C>                                                                                <C>
Item 1.   Financial Statements (Unaudited)

          Consolidated Balance Sheets as of July 31, 2003 and January 31, 2004 . . . . . . . .  3
          Consolidated Statements of Operations for the Three and Six Months Ended January
          31, 2003 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4
          Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended
          January 31, 2003 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  5
          Consolidated Statements of Cash Flows for the Six Months Ended January 31, 2003
          and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  6
          Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . .  7

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

Item 3.   Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . 18

Item 4.   Controls and procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

PART II.  OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Item 1.   Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
                                    PART 1. FINANCIAL INFORMATION

                                    ITEM 1. FINANCIAL STATEMENTS

                                      ATSI COMMUNICATIONS, INC.
                                           AND SUBSIDIARIES
                                     CONSOLIDATED BALANCE SHEETS
                               (in thousands except share information)

                                                                             January 31,    July 31,
                                                                                2004          2003
                                                                            -------------  ----------
<S>                                                                         <C>            <C>
ASSETS                                                                       (unaudited)
------
CURRENT ASSETS:
Cash and cash equivalents                                                   $         87   $     140
Accounts receivable                                                                   37           7
Note Receivable-current portion                                                       62         187
Prepaid & Other current assets                                                        12           6
                                                                            -------------  ----------
     Total current assets                                                            198         340
                                                                            -------------  ----------

OTHER ASSETS, net
Note Receivable                                                                      100         100
Investment in joint venture                                                          649         663
                                                                            -------------  ----------
     Total assets                                                           $        947   $   1,103
                                                                            =============  ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Pre-petition liabilities of bankrupt subsidiaries, net of assets            $     12,355   $  12,350
Accounts payable                                                                     453         356
Accrued liabilities                                                                2,719       2,559
Notes payable                                                                        570         445
Convertible debentures                                                               275         275
Series D Cumulative Preferred Stock, 3,000 shares authorized,
742 shares issued and outstanding.                                                 1,115       1,093
Series E Cumulative Preferred Stock, 10,000 shares authorized
and 1,170 shares issued and outstanding                                            1,242       1,209
Liabilities from discontinued operations, net of assets                            1,152       1,152
                                                                            -------------  ----------
     Total current liabilities                                                    19,881      19,439
                                                                            -------------  ----------

LONG-TERM LIABILITIES:
Other                                                                                 50           9
                                                                            -------------  ----------
     Total long-term liabilities                                                      50           9
                                                                            -------------  ----------

STOCKHOLDERS' DEFICIT:
Preferred Stock, $0.001 par value, 10,000,000 shares authorized,
Series A Cumulative Convertible Preferred Stock, 50,000 shares authorized,
4,370 shares issued and outstanding.                                                   -           -
Series F Cumulative Convertible Preferred Stock, 10,000 shares authorized,
7,260 shares issued and outstanding.                                                   -           -
Series G Cumulative Convertible Preferred Stock, 42,000 shares authorized,
6,500 shares issued and outstanding.                                                   -           -
Common stock, $0.001, 200,000,000 shares authorized,
103,655,190 and 103,638,690 issued and outstanding, respectively                     104         104
Additional paid in capital                                                        60,969      61,124
Accumulated deficit                                                              (80,559)    (80,075)
Other Comprehensive Income                                                           502         502
                                                                            -------------  ----------
     Total stockholders' deficit                                                 (18,984)    (18,345)
                                                                            -------------  ----------
     Total liabilities and stockholders' deficit                            $        947   $   1,103
                                                                            =============  ==========
</TABLE>

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


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                                ATSI COMMUNICATIONS, INC.
                                                     AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF OPERATIONS
                                         (In thousands, except per share amounts)
                                                       (unaudited)

                                                    Three months ended January 31,       Six months ended January 31,
                                                 ------------------------------------  ----------------------------------
                                                       2004               2003              2004              2003
                                                 -----------------  -----------------  ---------------  -----------------
<S>                                              <C>                <C>                <C>              <C>
OPERATING REVENUES:
Services
  Carrier services                               $            209   $          1,096   $          242   $          6,532
  Network services                                             42                122               84                307
                                                 -----------------  -----------------  ---------------  -----------------

  Total operating revenues                                    251              1,218              326              6,839

OPERATING EXPENSES:
  Cost of services (exclusive of depreciation
  and amortization, shown below)                              218              1,120              267              6,125
  Selling, general and administrative                         231              2,073              428              3,342
  Bad debt expense                                              -                  -                4                 13
  Depreciation and Amortization                                 -                442                -                849
                                                 -----------------  -----------------  ---------------  -----------------

  Total operating expenses                                    449              3,635              699             10,329
                                                 -----------------  -----------------  ---------------  -----------------


OPERATING LOSS                                               (198)            (2,417)            (373)            (3,490)

OTHER INCOME (EXPENSE):
  Other income (expense), net                                   -                 (6)               1                (19)
  Loss on an unconsolidated affiliate                         (53)                 -              (60)                 -
  Interest expense                                            (25)              (191)             (52)              (384)
  Loss from sale of assets                                      -                (28)               -                (28)
                                                 -----------------  -----------------  ---------------  -----------------

     Total other income (expense)                             (78)              (225)            (111)              (431)

LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAX                                 (276)            (2,642)            (484)            (3,921)

NET INCOME FROM DISCONTINUED
OPERATIONS                                                      -               (750)               -             (2,400)
                                                 -----------------  -----------------  ---------------  -----------------

NET LOSS                                                     (276)            (3,392)            (484)            (6,321)

LESS: PREFERRED DIVIDENDS                                     (93)               (91)            (186)              (187)
                                                 -----------------  -----------------  ---------------  -----------------

NET LOSS TO COMMON STOCKHOLDERS                             ($369)           ($3,483)           ($670)           ($6,508)
                                                 =================  =================  ===============  =================

BASIC AND DILUTED LOSS PER SHARE                           ($0.00)            ($0.00)          ($0.00)            ($0.00)
                                                 =================  =================  ===============  =================

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                                 103,655,000        103,173,000      103,655,000         99,926,000
                                                 =================  =================  ===============  =================
</TABLE>

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


                                        4
<PAGE>
<TABLE>
<CAPTION>
                                                    ATSI COMMUNICATIONS, INC.
                                                         AND SUBSIDIARIES
                                          CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                                          (In thousands)
                                                           (unaudited)

                                               For the three months ended January 31,      For the six months ended January 31,
                                             ------------------------------------------  ----------------------------------------
                                                     2004                  2003                 2004                 2003
                                             ---------------------  -------------------  -------------------  -------------------
<S>                                          <C>                    <C>                  <C>                  <C>
Net loss to common stockholders
   Other comprehensive income (loss),                       ($369)             ($3,483)               ($670)             ($6,508)
   net of tax:

    Foreign currency translation adjustment                     -                  579                    -                  803
                                             ---------------------  -------------------  -------------------  -------------------

Comprehensive loss to common stockholders                   ($369)             ($2,904)               ($670)             ($5,705)
                                             =====================  ===================  ===================  ===================
</TABLE>


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


                                        5
<PAGE>
<TABLE>
<CAPTION>
                                       ATSI COMMUNICATIONS, INC.
                                           AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENT OF CASH FLOWS
                                            (In thousands)
                                              (unaudited)

                                                                      Six months ended January  31,
                                                                   -----------------------------------
                                                                         2004              2003
                                                                   ----------------  -----------------
<S>                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                   ($484)           ($6,321)
  Adjustments to reconcile net loss
   operating activities-
     Impairment loss                                                             -                 88
     Depreciation and amortization                                               -              1,321
     Gain on disposition of property & equipment                                 -                 33
      Loss on an unconsolidated affiliate                                       60                  -
      Issuance of Common Stock for services                                      2                  -
      Issuance of Warrants for services                                         30                  -
     Foreign currency loss                                                       -                658
     Provision for losses on accounts receivable                                 4                 13
     Changes in operating assets and liabilities:
        (Increase)  Decrease in accounts receivable                            (29)               734
        (Increase) Decrease in prepaid expenses and other                       (6)               463
        Increase in accounts payable                                           139              2,794
        Increase in accrued liabilities                                         28              1,222
        (Decrease) in deferred revenue                                           -               (108)
                                                                   ----------------  -----------------
Net cash used / provided by operating activities                              (256)               897
                                                                   ----------------  -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property & equipment                                             -               (289)
   Cash proceeds from sale of ATSICOM                                          125                  -
   Investment in joint Venture  in ATSICOM                                     (47)                 -
                                                                   ----------------  -----------------
Net cash provided by / used in investing activities                             78               (289)
                                                                   ----------------  -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of debt                                              125                 25
   Capital Lease payments                                                        -                (87)
   Payment of expenses related to the issuance of preferred stock                -                (12)
   Payment of expenses related to the issuance of common stock                   -                (95)
                                                                   ----------------  -----------------
Net cash provided by / used in financing activities                            125               (169)
                                                                   ----------------  -----------------
NET (DECREASE) INCREASE IN CASH                                                (53)               439
CASH AND CASH EQUIVALENTS, beginning of period                                 140                 27
CASH AND CASH EQUIVALENTS, Allocated to discontinued operations                  -               (127)
                                                                   ----------------  -----------------
CASH AND CASH EQUIVALENTS, end of period                           $            87   $            339
                                                                   ================  =================
</TABLE>

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


                                        6
<PAGE>
                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                    (In thousands, except per share amounts)

     1.   BASIS  OF  PRESENTATION

     The  accompanying  unaudited  interim  financial  statements  of  ATSI
Communications, Inc. have been prepared in accordance with accounting principles
generally  accepted  in  the  United  States  of  America  and  the rules of the
Securities  and  Exchange  Commission ("SEC"), and should be read in conjunction
with  the  audited  financial  statements  and  notes  thereto contained in ATSI
Communications  Inc.  Annual  Report  filed  with  the SEC on Form 10-K.  In the
opinion  of  management,  these  interim  financial  statements  contain  all
adjustments,  consisting  of  normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim
periods  presented.  The  results  of  operations  for  interim  periods are not
necessarily  indicative  of the results to be expected for the full year.  Notes
to  the financial statements, which would substantially duplicate the disclosure
contained  in  the  audited financial statements for the most recent fiscal year
ended  July  31,  2003,  as  reported  in  the  Form  10-K,  have  been omitted.

     2.   PRE-PETITION  LIABILITIES (NET OF ASSETS) OF THE BANKRUPT SUBSIDIARIES

     Our  subsidiaries, American TeleSource International, Inc. (ATSI Texas) and
TeleSpan,  Inc.  (TeleSpan)  filed  for  protection under Chapter 11 of the U.S.
Bankruptcy  Code  on  February  4, 2003 and February 18, 2003 respectively.  The
court ordered joint administration of both cases on April 9, 2003 and on May 14,
2003  the court converted the cases to Chapter 7.  The two bankrupt subsidiaries
were  our  primary  operating  companies and they have ceased operations.  These
bankruptcies  did  not  include ATSI Communications, Inc., the reporting entity.
On July 2, 2003, the U.S. Bankruptcy Court handling the Chapter 7 cases for ATSI
Texas  and  TeleSpan  approved  the  sale  of two of their subsidiaries, ATSI de
Mexico  S.A  de  C.V. (ATSI Mexico) and Servicios de Infraestructura S.A de C.V.
(SINFRA),  to Latingroup Ventures, L.L.C. (LGV), a non-related party.  Under the
purchase  agreement  LGV  acquired all the communication centers and assumed all
related  liabilities.  Additionally,  under  the  agreement,  LGV  acquired  the
Comercializadora  License  owned  by  ATSI Mexico and the Teleport and Satellite
Network  License  and  the  20-year  Packet  Switching  Network license owned by
SINFRA.  The  Chapter  7  Bankruptcy Trustee received $17,500, which are all the
proceeds from the sale of these entities.  The Chapter 7 Bankruptcy Trustee will
manage  the  designation of these funds for the benefit of the creditors of ATSI
Texas  and TeleSpan.  Upon liquidation of all the assets owned by ATSI Texas and
TeleSpan,  the  Chapter  7  Trustee  will  negotiate  all claims with creditors.

The following represents the pre-petition liabilities (net of assets) in the
Chapter 7 case:


                                        7
<PAGE>
<TABLE>
<CAPTION>
                             ATSI Texas and TeleSpan
                     Pre petition Liabilities, net of assets
                                 (in thousands)

                                January 31, 2004   July 31, 2003
                                -----------------  --------------
<S>                             <C>                <C>
CURRENT LIABILITIES:
 Accounts payable               $           7,497  $        7,492
 Accrued liabilities                        2,015           2,015
 Notes payable                                636             636
 Capital leases                             2,207           2,207
                                -----------------  --------------
     Total current liabilities  $          12,355  $       12,350
                                -----------------  --------------
</TABLE>

     3.   NOTES  PAYABLE

     We have borrowed a total of $150,000 from Recap Marketing & Consulting, LLP
and entered into a series of unsecured convertible promissory notes bearing
interest at the rate of 12% per annum, with the following maturity dates:

<TABLE>
<CAPTION>

         ORIGINATION DATE    AMOUNT    MATURITY DATE
         -----------------  --------  ---------------
<S>                         <C>       <C>
         October 14, 2003   $ 50,000  April 20, 2004
         November 25, 2003    25,000  May 25, 2004
         December 15, 2003    25,000  June 15, 2004
         January 15, 2004     25,000  July 15, 2004
         February 19, 2004    25,000  August 19, 2004
                            --------
                     TOTAL: $150,000
                            ========
</TABLE>

     4.  WARRANTS

     On  October  13,  2003,  we  entered into a consulting agreement with Recap
Marketing  &  Consulting,  LLP  that  provides  for the issuance of compensation
warrants  to  purchase  a  total  of 3,000,000 shares of our common stock at the
following  prices  per  share:

<TABLE>
<CAPTION>
                  Common     Exercise
                  Shares       Price
                  ---------  ---------
<S>                          <C>
                  2,000,000  $    0.01
                    500,000  $    0.25
                    250,000  $    0.50
                    250,000  $    0.75
</TABLE>

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

     SPECIAL  NOTE: This Quarterly Report on Form 10-Q 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,
including  those  described in the Additional Risk Factors section of the Annual
Report  Form  10-K  and  other  documents filed with the Securities and Exchange
Commission.  Therefore,  these  types  of  statements may prove to be incorrect.

     The  following  is a discussion of the consolidated financial condition and
results  of  operations  of  ATSI for the three and six months ended January 31,
2003 and 2004.  It should be read in conjunction with our Consolidated Financial
Statements,  the  Notes  thereto and the other financial information included in
the  amended  annual  report  on Form 10-KA filed with the SEC on March 3, 2004.


                                        8
<PAGE>
GENERAL

     ATSI  was  founded  in  1993.  We are an international carrier, serving the
rapidly  expanding  communications  markets in and between Latin America and the
United  States.  Our  mission  is  to  connect  the  Americas  with  exceptional
communication  services.  Our  strategy  is  to  become  a  leading  provider of
communication  services  to  carriers  and businesses in the U.S./Latin American
corridor  through a high quality, 'next generation' Voice Over Internet Protocol
(VoIP)  network  established  through  our partnership with DialMex, LLC, a U.S.
based  international  telecommunications  company.  We  operate  two  principal
business  segments.

     Carrier  Services:  We  provide  termination  services to United States and
     Latin  American  telecommunications  companies  who  lack  transmission
     facilities,  require  additional  capacity  or  do  not have the regulatory
     licenses to terminate traffic in Mexico. Typically these telecommunications
     companies offer their services to the public for domestic and international
     long  distance  services.

     Network  Services:  We offer private communication links for multi-national
     and  Latin  American  corporations  or  enterprise customers who use a high
     volume  of  telecommunications  services  to  communicate  with  their U.S.
     offices  or  businesses  and  need  greater dependability than is available
     through  public  networks.  These  services  include  data,  voice  and fax
     transmission  as  well  as Internet services between the customers multiple
     international  offices  and  branches.

     We  have incurred operating losses and deficiencies in operating cash flows
in  each  year  since  our  inception  in 1994 and expect our losses to continue
through  July  31,  2004.  Our  operating losses were $5,780,000, $8,259,000 and
$4,850,000  for the years ending July 31, 2003, 2002 and 2001, respectively.  We
had  an  operating loss of  $198,000, for the quarter ended January 31, 2004 and
operating  loss  of  $373,000  for  the six-month period ended January 31, 2004.
Also we have a working capital deficit of $19,682,000, at January 31, 2004.  Due
to  such  losses, the negative cash flows generated from our operations, and our
substantial  working  capital  deficit,  our  auditor's opinion on our financial
statements  as  of July 31, 2003 calls attention to substantial doubts about our
ability  to  continue  as a going concern.  This means that there is substantial
doubt  that  we will be able to continue in business through the end of our next
fiscal  year,  July  31,  2004.

     We have experienced difficulty in paying our vendors and lenders on time in
the  past.  On  December 31, 2002 our carrier network capacity was idled and all
of  the  US  employees  were  terminated.  This  means  that we were not able to
generate  revenues  from  carrier  services during the second half of the fiscal
year  ending  July 31, 2003.  During the six month period ended January 31, 2004
were able to restart our carrier network and generated approximately $242,000 in
revenue.  However,  there can be no assurance that such revenue will continue to
be  generated  at  these  levels  from  these  customers.

     Additionally,  during  the  quarter  ended January 31, 2004 we entered into
three  short-term  promissory  notes  for a total of  $75,000.  These funds have
allowed  the Company to pay those operating and corporate expenses that were not
covered  by  our  current cash inflows from operations, specially those expenses
associated  with  our  year-end  audit  and  preparation  of  preliminary  proxy
materials.  We  will  continue  to  require  additional  funding  until the cash
inflows  from operations are sufficient to cover the monthly operating expenses.
However,  there  can  be  no  assurance  that  we will be successful in securing
additionally  funding  over  the  next  twelve  months.


                                        9
<PAGE>
<TABLE>
<CAPTION>
                                               Three months ended January 31,     Six months Ended January 31,
                                              --------------------------------  -------------------------------
                                                    2004             2003            2004            2003
                                              --------------  ----------------  --------------  ---------------
                                                                         (Unaudited)
                                                                         -----------
                                                 $       %        $        %       $       %        $       %
                                              -------  -----  ---------  -----  -------  -----  ---------  ----
<S>                                           <C>      <C>    <C>        <C>    <C>      <C>    <C>        <C>
Operating revenues
------------------
Services
    Carrier services                          $  209     83%  $  1,096     90%  $  242     74%  $  6,532    96%
    Network services                              42     17%       122     10%      84     26%       307     4%
                                              -------  -----  ---------  -----  -------  -----  ---------  ----

Total operating revenues                         251    100%     1,218    100%     326    100%     6,839   100%

Cost of services (Exclusive of depreciation
and amortization, shown below)                   218     87%     1,120     92%     267     82%     6,125    90%
                                              -------  -----  ---------  -----  -------  -----  ---------  ----

Gross Margin                                      33     13%        98      8%      59     18%       714    10%

Selling, general and administrative
expense                                          231     92%     2,073    170%     428    131%     3,342    49%

Bad debt expense                                   -      0%         -      0%       4      1%        13     0%

Depreciation and amortization                      -      0%       442     36%       -      0%       849    12%
                                              -------  -----  ---------  -----  -------  -----  ---------  ----

Operating loss                                  (198)   -79%    (2,417)  -199%    (373)  -114%    (3,490)  -51%

Other income (expense), net                      (78)   -31%      (225)   -18%    (111)   -34%      (431)   -6%
                                              -------  -----  ---------  -----  -------  -----  ---------  ----

Net loss from continuing operations             (276)  -110%    (2,642)  -217%    (484)  -148%    (3,921)  -57%

Income from discontinued
operations                                         -      0%      (750)   -62%       -      0%    (2,400)  -35%

Net loss                                        (276)  -110%    (3,392)  -279%    (484)  -148%    (6,321)  -92%
                                              -------  -----  ---------  -----  -------  -----  ---------  ----

Less: preferred stock dividends                  (93)   -37%       (91)    -7%    (186)   -57%      (187)   -3%
                                              -------  -----  ---------  -----  -------  -----  ---------  ----

Net loss to applicable to
common shareholders                            ($369)  -147%   ($3,483)  -286%   ($670)  -206%   ($6,508)  -95%
                                              =======         =========         =======         =========
</TABLE>

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 period ended January 31, 2003 and 2004.

THREE MONTHS ENDED JANUARY 31, 2004 COMPARED TO THREE MONTHS ENDED JANUARY 31,
2003


                                       10
<PAGE>
     Operating Revenues.  Consolidated operating revenues decreased 79% between
periods from $1.2 million for the quarter ended January 31, 2003 to $251,000 for
the quarter ended January 31, 2004.
     Carrier services revenues decreased approximately $887,000, or 81% from the
quarter  ended  January  2003  to  the  quarter ended January 2004.  Our carrier
traffic  declined  from  approximately 16.3 million minutes in the quarter ended
January  31,  2003 to approximately 4.9 million minutes during the quarter ended
January  31,  2004.  The  decrease  in revenue and carrier traffic can mainly be
attributed  to  the idling of our network during December 2002.  We were able to
restart  our  network  during  fiscal  2004 and during the quarter ended January
2004;  we  generated  approximately  $209,000  in  carrier  services  revenue.

     Network  services  revenues decreased approximately 65% or $80,000 from the
quarter  ended  January  31, 2003 to the quarter ended January 31, 2004.  During
the  quarter ended January 31, 2004 we provided network services to one customer
and  generated  approximately  $3,705  in revenues from this customer during the
quarter.  We  also  provided  network management services to Latingroup Ventures
L.L.C.  (LGV),  a  non-related  party.  Under  the agreement with LGV we provide
customer  service, technical support and manage the collections process of their
private  network customers.  This management agreement initiated on July 1, 2003
and  we will generate approximately $12,700 per month in management fees through
June  30,  2004.  During  the  quarter  ended  January  31,  2004  we  generated
approximately  $42,000  in  network  services  revenue.

     Cost  of  Services.  (Exclusive  of  depreciation  and  amortization)  The
consolidated  cost  of  services deceased by approximately $902,000, or 81% from
the  quarter  ended January 31, 2003 to the quarter ended January 31, 2004.  The
decrease  in  cost  of  services  is  a direct result of the decrease in carrier
revenue  and network services revenue.  As mentioned above, we idled our network
in  December  2002  and  our  carrier  traffic  declined from approximately 16.3
million  minutes  during the quarter ended January 31, 2003 to approximately 4.9
million  minutes  during  the  quarter ended January 31, 2004, thus reducing our
cost  of  services  between  quarters.

     Selling,  General  and  Administrative  (SG&A)  Expenses.  SG&A  expenses
decreased  approximately $1.8 million, or 89% from the quarter ended January 31,
2003 to the quarter ended January 31, 2004.  The decrease was offset slightly by
approximately  $80,000  of professional fees recognized during the quarter ended
January  31,  2004  associated  with  the  quarter review, proxy preparation and
annual  shareholder  meeting.  The  decrease  can  mainly  be  attributed to the
termination  of  all  of  the  employees  associated  with  the carrier services
business  unit  and  network services in January 2003.  The termination of these
employees resulted in a decrease in salaries and wages of approximately $195,000
per month or $585,000 per quarter.  Additionally, as a result of the termination
of  these  employees, during the quarter ended January 31, 2004, the company did
not  incur  health  and  business insurance expense of approximately $96,000 per
month  or $288,000 per quarter.  Additionally, as a result of the termination of
all  of  the  employees we reduced our rent expense by approximately $40,000 per
month  or  $120,000  per  quarter.

     Depreciation  and  Amortization. Depreciation and amortization decreased by
100%  or  $442,000  from the quarter ended January 31, 2003 to the quarter ended
January  31,  2004.  The  decrease  is attributed to the disposal of all capital
equipment  during  Fiscal  2003.

     Operating  Loss.  The  Company's  operating loss decreased by approximately
$2.2 million or 92% from the quarter ended January 31, 2003 to the quarter ended
January  31, 2004.  The decrease in operating loss is attributed to the decrease
between  periods  of  SG&A of  $1.8 million and the decrease in depreciation and
amortization  of  approximately $442,000.  The decrease in SG&A and depreciation
and  amortization  were  offset  slightly  by  the  reduction in gross margin of
approximately  $65,000.


                                       11
<PAGE>
     Other  Income (expense).  Other expense decreased approximately $147,000 or
65%  from  the  quarter  ended January 31, 2003 to the quarter ended January 31,
2004.  The decrease in other income and expense is attributed to the decrease in
interest  expense  of approximately $189,000 recognized during the quarter ended
January  31,  2003  associated  with various capital leases.  During the quarter
ended  January 31, 2004 the Company did not have any capital leases, thus we did
not  incur  any  interest  expense  associated  with  capital  leases.

     Loss  from  discontinued  operations.  Loss  from  discontinued  operations
decreased  by  $750,000  between  periods,  from  $750,000 for the quarter ended
January  31,  2003  to $0 during the quarter ended January 31, 2004.  During the
quarter  ended January 31, 2003, we recognized loss from discontinued operations
of  approximately  $750,000 associated with Mexico Telco operations.  The Mexico
Telco  loss  from  discontinued  operations during the quarter ended January 31,
2003  can  mainly  be attributed to the recognition of approximately $927,000 in
selling,  general and administrative expenses and the recognition of $322,000 of
foreign  currency  loss on exchange rate related to the Mexico Telco operations.
Additionally,  the  Mexico  Telco  operations  also  recognized  $84,000  of
depreciation  and amortization and approximately $76,000 of interest expense and
income  tax  expense  during the quarter ended January 31, 2003.  These expenses
were  offset  slightly  by  the  recognition  of approximately $670,000 of gross
profit  margin  from  the  Mexico  Telco  Operations.

     Preferred  Stock  Dividends.  During the quarter ended January 31, 2003, we
recorded  approximately  $91,000  of  non-cash  dividends expense related to our
cumulative  convertible  preferred  stock.  This  expense  was comparable to the
non-cash  dividends expense recognized during the quarter ended January 31, 2004
of  approximately  $93,000.

     Net  loss  to  Common  Stockholders.  The  net  loss  for the quarter ended
January  31,  2004  decreased  to $369,000 from $3,483,000 for the quarter ended
January  31,  2003.  The  decrease  in  net  loss to common stockholders was due
primarily  to  the  idling  of  our  network  and  not incurring any fixed costs
associated  with the leasing of satellite sites, connectivity fees and operating
a  network  site  during the quarter ended January 31, 2004.  During the quarter
ended  January  31,  2003,  we  incurred  approximately $175,000 of fixed costs.
Additionally,  as  mentioned  above  SG&A  expenses  and  loss from discontinued
operations  decreased  from  the  quarter  ended January 31, 2003 to the quarter
ended January 31, 2004 by approximately $1.8 million and $750,000, respectively.
Also,  there  was  a  decrease in depreciation and amortization of approximately
$422,000  from  the  quarter ended January 31, 2003 to the quarter ended January
31,  2004.

SIX MONTHS ENDED JANUARY 31, 2004 COMPARED TO SIX MONTHS ENDED JANUARY 31, 2003

     Operating  Revenues.  Consolidated operating revenues decreased 95% between
periods  from $6.8 million for the six months ended January 31, 2003 to $326,000
for  the  six  months  ended  January  31,  2004.

     Carrier services revenues decreased approximately $6.3 million, or 96% from
the  six  months  ended  January 2003 to the six months ended January 2004.  Our
carrier  traffic declined from approximately 85.2 million minutes during the six
months  ended  January  31, 2003 to approximately 5.7 million minutes during the
six  months ended January 31, 2004.  The decrease in revenue and carrier traffic
can  mainly be attributed to the idling of our network during December 2002.  We
were  able  to  restart  our network during fiscal 2004 and during the six-month
period  ending  January  2004,  we  generated  approximately $242,000 in carrier
services  revenue.

     Network  services revenues decreased approximately 73% or $223,000 from the
six-month  period  ended  January 31, 2003 to the six-month period ended January
31,  2004.  During  the  six-month  period  ended


                                       12
<PAGE>
January  31,  2004  we  provided  network services to one customer and generated
approximately  $7,400  in  revenues from this customer. We also provided network
management  services  to  Latingroup Ventures L.L.C. (LGV), a non-related party.
Under  the agreement with LGV we provide customer service, technical support and
manage  the  collections  process  of  their  private  network  customers.  This
management  agreement  initiated  on  July  1,  2003  and  we  will  generate
approximately $12,700 per month in management fees through June 30, 2004. During
the  six-month  ended  January  31,  2004  we generated approximately $84,000 in
network  services  revenue.

     Cost  of  Services.  (Exclusive  of  depreciation  and  amortization)  The
consolidated  cost  of  services decreased by approximately $5.9 million, or 96%
from  the  six months ended January 31, 2003 to the six months ended January 31,
2004.  The  decrease  in  cost of services is a direct result of the decrease in
carrier  revenue and network services revenue.  As mentioned above, we idled our
network  in  December  2002  and our carrier traffic declined from approximately
85.2  million  minutes  during  the  six  months  ended  January  31,  2003  to
approximately  5.7 million minutes during the six months ended January 31, 2004,
thus  reducing  our  cost  of  services  between  periods.

     Selling,  General  and  Administrative  (SG&A)  Expenses.  SG&A  expenses
decreased  approximately  $2.9 million, or 87% from the six months ended January
31,  2003  to  the  six  months  ended January 31, 2004. The decrease was offset
slightly by approximately $80,000 of professional fees recognized during the six
months  ended  January  31,  2004  associated  with  the  quarter  review, proxy
preparation  and  annual  shareholder  meeting.  The  decrease  can  mainly  be
attributed  to  the  termination  of  all  of  the employees associated with the
carrier  services  business  unit  and  network  services  in  January 2003. The
termination  of  these employees resulted in a decrease in salaries and wages of
approximately $195,000 per month or $1.2 million during the six-month period. As
a  result  of  the  termination  of these employees, during the six months ended
January  31,  2004,  the  company  did  not  incur health and business insurance
expense  of  approximately  $96,000  per  month or $576,000 during the six-month
period. Additionally, as a result of the termination of all of the employees, we
reduced  our  rent expense by approximately $40,000 per month or $240,000 during
the  six-month  period.

     Depreciation  and Amortization.  Depreciation and amortization decreased by
100%  or  $849,000  from the six months ended January 31, 2003 to the six months
ended  January  31,  2004.  The  decrease  is  attributed to the disposal of all
capital  equipment  during  Fiscal  2003.

     Operating  Loss.  The  Company's  operating loss decreased by approximately
$3.1 million or 89% from the six months ended January 31, 2003 to the six months
ended  January  31,  2004.  The  decrease in operating loss is attributed to the
decrease  between  periods  of  SG&A  of  $2.9  million  and  the  decrease  in
depreciation  and  amortization of approximately $849,000.  The decrease in SG&A
and depreciation and amortization were offset slightly by the reduction in gross
margin  of  approximately  $655,000.

     Other  Income  (expense).  Other  expense  decreased approximately $320,000
from  the  six months ended January 31, 2003 to the six months ended January 31,
2004.  The decrease in other income and expense is attributed to the decrease in
interest  expense  of  approximately  $358,000  recognized during the six months
ended  January  31,  2003  associated  with  various capital leases.  During the
quarter ended January 31, 2004 the Company did not have any capital leases, thus
we  did  not  incur  any  interest  expense  associated  with  capital  leases.

     Loss  from  discontinued  operations.  Loss  from  discontinued  operations
decreased  by  $2.4 million between periods, from $2.4 million for the six-month
period  ended  January  31, 2003 to $0 during the six-month period ended January
31,  2004.  During  the  six-month  period ended January 31, 2003, we recognized


                                       13
<PAGE>
loss  from discontinued operations of approximately $2.4 million associated with
Mexico  Telco  operations.  The  Mexico  Telco loss from discontinued operations
during  the  quarter  ended  January  31,  2003  can mainly be attributed to the
recognition of approximately $2.4 million in selling, general and administrative
expenses  and  the  recognition of $657,000 of foreign currency loss on exchange
rate  related  to  the  Mexico  Telco operations. Additionally, the Mexico Telco
operations  also  recognized  $473,000  of  depreciation  and  amortization  and
approximately  $152,000  of  interest  expense and income tax expense during the
six-month  period ended January 31, 2003. These expenses were offset slightly by
the  recognition  of  approximately $1.3 million of gross profit margin from the
Mexico  Telco  Operations.

     Preferred  Stock  Dividends.  During the six months ended January 31, 2003,
we  recorded approximately $187,000 of non-cash dividends expense related to our
cumulative  convertible  preferred  stock,  this  expense  was comparable to the
non-cash  dividends  expense  recognized during the six months ended January 31,
2004  of  approximately  $186,000.

     Net  loss  to  Common  Stockholders.  The net loss for the six months ended
January  31,  2004  decreased  to  $670,000 from $6.5 million for the six months
ended January 31, 2003.  The decrease in net loss to common stockholders was due
primarily  to  the  idling  of  our  network  and  not incurring any fixed costs
associated  with the leasing of satellite sites, connectivity fees and operating
a  network  site  during  the six months ended January 31, 2004.  During the six
months  ended  January  31,  2003,  we  incurred approximately $625,000 of fixed
costs.  Additionally,  as  mentioned  above,  SG&A  expenses  and  loss  from
discontinued  operations decreased from the six months ended January 31, 2003 to
the  six  months  ended  January 31, 2004 by approximately $2.9 million and $2.4
million,  respectively.  Also,  there  was  a  decrease  in  depreciation  and
amortization  of  approximately  $849,000  from the six months ended January 31,
2003 to the six months ended January 31, 2004.

LIQUIDITY AND CAPITAL RESOURCES

     Cash  used  in  /  provided by operating activities:  During the six months
ended  January  31,  2004,  operations  consumed approximately $256,000 in cash.
This  cash  consumed  by  operations  is  primarily  due  to operating losses of
approximately  $484,000.  The  net  loss  was somewhat offset by the increase in
accounts  payable,  accrued  liabilities and the exercise of warrants issued for
services  of  approximately  $139,000,  $28,000  and $30,000, respectively.  The
increase  in  accrued  liabilities  and accounts payable is primarily due to the
company  recognizing  approximately  $41,000  in  customer deposits from LGV for
future  services  and  the accrual of professional fees, board fees and interest
expense  of  approximately  $54,000.  Additionally,  we recognized approximately
$30,000  in  the  issuance  of  warrants  for services related to the consulting
agreement entered into with Recap Marketing & Consulting, LLP.  Currently we are
not  generating  sufficient  revenues  from  operations  to  cover  our  monthly
operating  salaries  and  general  and administrative expense.  We depend on the
monthly  payments  of  approximately  $20,750  from  the  sale  of  51%  of ATSI
Comunicaciones  S.A  de C.V. to Telemarketing S.A de C.V. to pay for our monthly
SG&A  expenses.  Currently  we incur approximately  $71,000 in SG&A expenses per
month,  including  corporate expenses associated with the quarter reviews, proxy
preparation  and  annual  shareholder  meeting.  We  expect  this  financial
instability and lack of liquidity to continue during the fiscal year 2004.  As a
result  over  the next twelve months we estimate requiring additional funding of
approximately  $745,000  to  compensate  for  the  deficiencies in cash inflows.

     Cash  provided  by  /  used  in investing activities: During the six months
ended  January 31, 2004, the Company received approximately $125,000 in payments
from  the sale of 51% of ATSI Comunicaciones S.A de C.V. to Telemarketing S.A de
C.V.  Additionally,  during  the  six  months  ended  we  invested approximately
$47,000  in  ATSI  Comunicaciones  S.A  de C.V.  ATSI Comunicaciones S.A de C.V.
utilized  these  proceeds


                                       14
<PAGE>
to  pay  off payroll taxes and professional fees previously agreed upon the sale
of  ATSICOM  to  Telemarketing.

     Cash  flows  provided  by  /  used in financing activities:  During the six
months  ended  January  31,  2004  we  received  approximately  $125,000 for the
issuance  of  debt  and  warrant  options.

     Overall,  the  Company's  net operating, investing and financing activities
during  the  six  months  ended  January  31,  2004  provided  a  decrease  of
approximately  $53,000  in  cash  balances.  We  intend  to  cover  our  monthly
operating  expenses  with  our  remaining available cash.  However, as discussed
previously  we  are also dependent on the monthly cash payments from the sale of
ATSICOM  to  cover  monthly  operating  expenses.

     The Company's working capital deficit at January 31, 2004 was approximately
$19,682,000.  This  represents  an  increase  of approximately $583,000 from our
working  capital deficit at July 31, 2003.  The increase is primarily attributed
to  our  deficiency of cash and the accrual of various professional services and
interest  expense.  The  Company's  working capital deficit at January  31, 2004
included  approximately $12,355,000 related to the pre-petition liabilities (net
of  assets),  associated  with  the  Chapter  7 Bankruptcy cases, ATSI Texas and
TeleSpan.  The adjusted Company's working capital deficit after exclusion of the
pre-petition  liabilities  is  approximately  $7,327,000.

     The  Company's  current  liabilities  include  approximately  $12,355,000
associated  with  the  pre-petition  liabilities related to the two subsidiaries
under  the  Chapter  7  Bankruptcy,  ATSI  Texas and TeleSpan.  The pre-petition
liability balance is composed of the following major liabilities:

     -    approximately  $3 million in debt owed to IBM Corporation related to a
          capital  lease;
     -    approximately  $1.3  million debt to Northern Telecom, a subsidiary of
          Nortel  Networks,  associated  with  some telecommunications equipment
          acquired  during  fiscal  year  2001;
     -    approximately  $5.1  million  in  debt  to  various  international and
          domestic  telecommunications  carriers  for  services  provided during
          fiscal  year  2002  and  2003;
     -    approximately  $250,000  in property taxes to various taxing entities,
          approximately $550,000 to Universal Service Fund for telecommunication
          taxes;
     -    approximately  $250,000  in  a  note  payable;  and
     -    approximately  $2.4 million associated with rent expense, salaries and
          wages  and  professional  services  to  various  entities.

     The  Company's  current  obligations  also include approximately $1,367,000
owed  to the former owners of Grupo Intelcom, S.A. de C.V., the entity purchased
by  the  Company in July 2000 and through which the Company obtained its Mexican
long distance concession.  Of this amount, $357,000 is included in notes payable
and the additional $1,030,000 is included in accrued liabilities.

     The  Company's  current liabilities also include approximately $1.1 million
associated  with the Series D Cumulative preferred stock.  During the year ended
July  31,  2003,  we  received  a  redemption  letter  from  the Series D holder
requesting the redemption of all the outstanding Series D preferred stock.  As a
result  the  full  redemption  amount of approximately $942,000 and dividends of
approximately  $300,000  were  reclassed  to  current  liabilities.
     The  Company's  current  liability  includes  approximately  $1.1  million
associated with the Series E Cumulative preferred stock.  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


                                       15
<PAGE>
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 Southern District Court of
New  York  against two financial institutions, Rose Glen Capital and Shaar Fund,
the holders of Series D and E Redeemable Preferred Stock, for what we believe to
be  "Stock  fraud  and manipulation".  These liabilities combined for a total of
approximately  $2.4  million.  Accounting  rules  dictate that these liabilities
remain  in  our books under Current Liabilities until the lawsuit is resolved in
the judicial system or otherwise.  At this time we cannot predict the outcome or
the  time  frame  for  this  to  occur.

     We  also  have  approximately  $1.2  million of current liabilities (net of
assets)  associated to the discontinued operations of the retails services unit.
This  balance  is  mainly composed of approximately $453,000 owed to the Mexican
taxing authorities related to a note assumed through the acquisition of Computel
and approximately $944,000 related to income taxes owed as of the quarter ending
October  31,  2003.

     We believe that, based on our limited availability to capital resources and
our  current cash balances, that these resources may not be available to support
our  ongoing  operations  for  the  next  twelve  months or until we are able to
generate  income  from  operations.  These matters raise substantial doubt about
our  ability to continue as a going concern.  Our ability to continue as a going
concern is dependent upon the ongoing support of our stockholders and customers,
our ability to obtain capital resources to support operations and our ability to
successfully  market  our  services.

     In  May  2003,  the  company  entered  into a Share Purchase Agreement with
Telemarketing  de Mexico, S.A. de C.V. (Telemarketing) whereby we agreed to sell
Telemarketing  51%  of our Mexican subsidiary, ATSI Comunicaciones, S.A. de C.V.
(ATISCOM).  The  agreement  provides  that  there  will be an initial payment of
$194,000 plus payment of approximately $200,000 of ATSICOM'S liabilities and the
remaining  purchase  price  of  $747,000  will  be  paid  as  follows:

     -    Beginning in May 2003 Telemarketing paid ATSI $20,750 per month for 12
          months;  and
     -    Beginning  in  May 2004, Telemarketing will pay ATSI $20,750 per month
          for  the  next  24  months,  contingent  on ATSI generating 20,750,000
          minutes of monthly traffic through ATSICOM's network. In the event the
          Company  does not reach the above-mentioned volume of monthly minutes,
          the  monthly  payment will be adjusted based on the same percentage of
          the  shortfall in minutes, until Telemarketing pays the total purchase
          price.  On  the  other  hand,  if  ATSI  exceeds the volume of monthly
          traffic,  Telemarketing can make additional payments, without penalty.

Management  intends  to  utilize  the  funds  from  the  sale of ATSICOM to fund
operations.  There  can  be  no  assurance  that  we will be able to continue to
operate  with these funds over the next twelve months or that we will be able to
generate  sufficient  cash  from  operations  to  cover  our  monthly  operating
expenses.  Additionally, there is no assurance that we will be able to raise the
additional  capital  from  equity  of  debt  sources  required  to  continue  in
operations.

MEXICAN FACILITIES-BASED LICENSE RISKS

     We  are  substantially dependent upon the operations of ATSICOM, the holder
of  the  30-year  concession license (the "Concession") to install and operate a
public  telecommunication  network  in


                                       16
<PAGE>
Mexico,  for  the  installation and operation of a telecommunications network in
Mexico. The Mexican government has (1) authority to temporarily seize all assets
related  to  the  Concession  in the event of natural disaster, war, significant
public  disturbance  and  threats  to  internal  peace  and for other reasons of
economic  or  public  order  and  (2)  the  statutory  right  to expropriate the
Concession  and  claim  all related assets for public interest reasons. Although
Mexican  law  provides  for  compensation  in connection with losses and damages
related  to  temporary  seizure  or expropriation, we cannot assure you that the
compensation  will  be  adequate  or  timely.

     Under the Concession, ATSICOM must meet the following requirements:

General requirements
--------------------

-    Maintain approximately 10 millions dollars in registered and subscribed
     capital
-    Install and operate a network in Mexico, obtain approval of the operating
     plan and any changes in it before implementation
-    Continuously develop and conduct training programs for its staff
-    Assign an individual responsible for the technical functions to operate the
     concession

Concession services requirements
--------------------------------

-    Provide continuous and efficient services at all times to its customers
-    Establish a complaint center and correction facilities center and report to
     the Mexican Government on a monthly basis the complaints received and the
     actions taken to resolve the problems

Tariff Requirements
-------------------

-    Invoice its customer's at tariffs rates that have been approved by the
     Mexican government

Verification and Information requirements
-----------------------------------------

-    Provide audited financial statements on a yearly basis that includes a
     detailed description of the fixed assets utilized in the network and
     accounting reporting by region and location of where the services are being
     provided
-    Provide quarterly reports and updates on the expansion of the network in
     Mexico and a description of the training programs and research and
     development programs
-    Provide statistic reports of traffic, switching capacity and other
     parameters in the network

Guarantee requirements
----------------------

-    Maintain a bond/ insurance policy for approximately $500,000 dollars
     payable in the event the Mexican government revokes the Concession

     On May 23, 2003, the Company sold 51% of ATSICOM to Telemarketing.   We
cannot assure you that we and our partner, Telemarketing, will be able to obtain
financing to finish the Mexican network; if we or our partners obtain financing
it will be in a timely manner or on favorable terms; or if we or our partners
will be able to comply with the Mexican concession's conditions.  If our
partners or we fail to comply with the terms of the concession, the Mexican
government may terminate it without compensation to our partners or us.  A
termination would prevent us from engaging in our proposed business.


                                       17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Commodity  Price Risk: Our carrier services and network services businesses
     ---------------------
rely  on  the  availability  and pricing of carrier and network capacity and are
subject  to  fluctuations in the cost of such capacity based on the availability
and  demand.  Customers  select  carrier  services and network services based on
perceived price and reliability.  As a result of these factors, these businesses
operate in an extremely price sensitive and volatile environment.  While we have
been  able  to  withstand these pricing volatilities, certain of our competitors
are much larger and better positioned, own some or all of their network capacity
and  may  not  be as susceptible to fluctuations in price and availability.  Our
ability  to  continue  to  operate  in  this environment may be dependent on our
ability  to  further  reduce  our  costs  of  transporting these minutes and our
ability  to  obtain  long-term  contracts  with  the  owners  of  transmission
facilities.

     Equity Price Risks:  Until such time as we are able to consistently produce
     ------------------
positive  cash  flows  from  operations,  we will be dependent on our ability to
access  debt  and  equity sources of capital.  While recent history has shown us
capable  of  raising equity sources of capital; future equity financings and the
terms  of  those  financings  will  be largely dependent on our stock price, our
operations  and  the  future  dilution  to  our  shareholders.

ITEM 4.  CONTROLS AND PROCEDURES

     The  Company has adopted and implemented disclosure controls and procedures
designed to provide reasonable assurance that all reportable information will be
recorded, processed, summarized and reported within the time period specified in
the  SEC's rules and forms.  The Company's President and Chief Executive Officer
and the Company's Controller and Principal Financial Officer have concluded that
these  disclosures  and  procedures  are  effective  at the reasonable assurance
level.  Under  the  supervision  and  with  the  participation  of the Company's
management,  including  the  Company's President and Chief Executive Officer and
the  Company's  Controller  and  Principal  Financial  Officer,  the Company has
evaluated  the  effectiveness  of  the  design  and  operation of its disclosure
controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of the end of
the quarter covered by this report.  Based on that evaluation, the President and
Chief  Executive Officer and the Controller and Principal Financial Officer have
concluded  that these disclosure controls and procedures are effective as of the
end  of  the  period  covered  by  this  report.  There  were  no changes in the
Company's  internal  control over financial reporting during the quarter covered
by  this report that have had a material affect or are reasonably likely to have
a  material  affect  on  internal  control  over  financial  reporting.

                           PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On  January  7, 2004, we filed a petition in the 150th Judicial District of
Bexar  County, Texas against Inter-tel.net, Inc. and Vianet Communications, Inc.
D/B/A Inter-tel.net seeking declaratory relief that ATSI Communications, Inc. is
not  bound by the Carrier Services Agreement between Vianet Communications, Inc.
and  ATSI  Texas.  On  February  27,  2004  the  Bankruptcy Court allowed Vianet
Communications,  Inc.  to amend its claim against ATSI Texas that was pending in
the  Bankruptcy  of  ATSI  Texas  and  assert  its claims for breach of contract
against  the  Company.  The  Bankruptcy  Court  then  ordered  the lawsuit to be
remanded  back  to state court for hearing.  The Company is vigorously defending
any  claim  for  liability in this matter and pursuing its claim for declaratory
relief  and  believes  that  any  liability  in  this  matter  will  not  have a


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material adverse effect on its financial condition or results of operations.

     On  December  30,  2003,  the  Company filed a cause of action in the 407th
Judicial  District  of  Bexar  County, Texas against James C. Cuevas, Raymond G.
Romero, Texas Workforce Commission, ATSI Communications, Inc. (Texas) and Martin
W. Seidler seeking judicial review on the decision issued by the Texas Workforce
Commission  awarding  a claim for unpaid wages against the Company.  The Company
is  vigorously pursuing its claim and believes that any liability in this matter
will not have a material adverse effect on its financial condition or results of
operations.

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K/A

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

EXHIBIT
NUMBER
------

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.*

     (b)  The following Current Reports on Form 8-K were filed during the second
          quarter  of  fiscal  2004.

     On  December 12, 2003 we filed a Current Report on Form 8-K reporting under
     Item  4  the  dismissal  of Tanner + Co. and the hiring of Malone & Bailey,
     PLLC.


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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.

                                               ATSI COMMUNICATIONS, INC.
                                                     (Registrant)


Date:  March 15, 2004                          By:    /s/ Arthur L. Smith
       --------------                                 -------------------
                                               Name:  Arthur L. Smith
                                               Title: President and
                                                      Chief Executive Officer

Date:  March 15, 2004                          By:    /s/ Antonio Estrada
       --------------                                 -------------------
                                               Name:  Antonio Estrada
                                               Title: Corporate Controller
                                                      (Principal Accounting and
                                                      Financial Officer)


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