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

================================================================================

                                   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  April  30,  2005

[_]  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 001-15687

                            ATSI COMMUNICATIONS, INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

                NEVADA                                    74-2849995
     (State or Other Jurisdiction of                    (IRS Employer
     Incorporation or Organization)                   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)

     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
[_]

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

                    CLASS               OUTSTANDING AS OF JUNE 14, 2005

           Common Stock, $.001 par                9,514,190

     Transitional Small Business Disclosure Format:  Yes [_]  No [X]


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

                                   QUARTERLY REPORT ON FORM 10-QSB
                                FOR THE QUARTER ENDED APRIL 30, 2005

                                                INDEX


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

    Consolidated Balance Sheet as of April 30, 2005. . . . . . . . . . . . . . . . . . . . . .     1
    Consolidated Statements of Operations for the Three and Nine Months
    Ended April 30, 2005 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     2
    Consolidated Statements of Comprehensive Loss for the Three and Nine Months
    Ended April 30, 2005 and 2004. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3
    Consolidated Statements of Cash Flows for the Nine Months Ended April 30, 2005 and 2004. .     4
    Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .     5

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

Item 3. Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16

PART II. OTHER INFORMATION

Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    16

Item 2. Unregistered Sales of Equity Securities and use of proceeds. . . . . . . . . . . . . .    17

Item 3. Default upon senior securities . . . . . . . . . . . . . . . . . . . . . . . . . . . .    17

Item 6. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    17
</TABLE>


<PAGE>
PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                           April 30,
                                                                                             2005
                                                                                          -----------
<S>                                                                                       <C>
ASSETS
-------
CURRENT ASSETS:
Cash and cash equivalents                                                                 $       63
Accounts receivable                                                                              145
Prepaid & other current assets                                                                    44
                                                                                          -----------
  Total current assets                                                                           252
                                                                                          -----------

PROPERTY AND EQUIPMENT                                                                           228
Less - Accumulated depreciation                                                                  (65)
                                                                                          -----------
  Net property and equipment                                                                     163
                                                                                          -----------

OTHER ASSETS
Intangible assets, net of accumulated amortization of $24                                          8
                                                                                          -----------
  Total assets                                                                            $      423
                                                                                          ===========

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable                                                                                 506
Accrued liabilities                                                                              520
Current portion of obligation under capital leases                                                 3
Notes payable                                                                                    128
Convertible debentures                                                                           275
Series D Cumulative Preferred Stock, 3,000 shares authorized, 742 shares issued and
outstanding.                                                                                   1,171
Series E Cumulative Preferred Stock, 10,000 shares authorized, 1,170 shares issued and
outstanding                                                                                    1,327
Liabilities from discontinued operations, net of assets                                        1,152
                                                                                          -----------
  Total current liabilities                                                                    5,082
                                                                                          -----------

LONG-TERM LIABILITIES:
Notes payable                                                                                    500
Obligation under capital leases, less current portion                                              9
Other                                                                                              8
  Total long-term liabilities                                                                    517

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  issued
and outstanding                                                                                    -
Series H Convertible Preferred Stock, 16,000,000 shares authorized, 13,912,572  issued
and outstanding                                                                                   14
Common stock, $0.001, 150,000,000 shares authorized,  9,514,190  issued and outstanding           10
Additional paid in capital                                                                    72,185
Accumulated deficit                                                                          (77,887)
Other comprehensive income                                                                       502
                                                                                          -----------
  Total stockholders' deficit                                                                 (5,176)
                                                                                          -----------
  Total liabilities and stockholders' deficit                                             $      423
                                                                                          -----------
</TABLE>


                                        1
<PAGE>
<TABLE>
<CAPTION>
                                                    ATSI COMMUNICATIONS, INC.
                                                         AND SUBSIDIARIES
                                              CONSOLIDATED STATEMENTS OF OPERATIONS
                                             (In thousands, except per share amounts)
                                                           (unaudited)

                                                                     Three months ended April 30,   Nine months ended April 30,
                                                                   ------------------------------  ------------------------------
                                                                        2005            2004            2005            2004
                                                                   --------------  --------------  --------------  --------------
<S>                                                                <C>             <C>             <C>             <C>
OPERATING REVENUES:
  Services
    Carrier services                                               $       1,727   $         484   $       3,943   $         726
    Network services                                                          70              77             217             161
                                                                   --------------  --------------  --------------  --------------
    Total operating revenues                                               1,797             561           4,160             887

OPERATING EXPENSES:
    Cost of services (exclusive of depreciation
    and amortization, shown below)                                         1,660             501           3,854             768
    Selling, general and administrative                                      140             164             314             413
    Legal and professional fees                                               60              52             365             201
    Non-cash issuance of common stock  and warrants for services             220               -             944              30
    Non-cash stock-based compensation, employees                               -               -             474               -
    Bad debt expense                                                           -               -               4               4
    Depreciation and amortization                                             32               6              79               6
                                                                   --------------  --------------  --------------  --------------
    Total operating expenses                                               2,112             723           6,034           1,422
                                                                   --------------  --------------  --------------  --------------

OPERATING INCOME (LOSS)                                                     (315)           (162)         (1,874)           (535)

OTHER INCOME (EXPENSE):
  Other income (expense)                                                       9               -              13               1
  Debt forgiveness income                                                      -               -             460               -
  Gain on disposal of investment                                          12,104               -          12,104               -
  Gain from sale of  assets                                                    -              25               -              25
  Loss on an unconsolidated affiliate                                          -             (25)              -             (85)
  Interest income (expense)                                                   20             (29)            (46)            (82)
                                                                   --------------  --------------  --------------  --------------

    Total other income (expense)                                          12,133             (29)         12,531            (141)

NET INCOME (LOSS)                                                         11,818            (191)         10,657            (676)

LESS: PREFERRED DIVIDENDS                                                    (38)            (82)           (114)           (268)
                                                                   --------------  --------------  --------------  --------------

NET INCOME (LOSS) TO COMMON
STOCKHOLDERS                                                       $      11,780           ($273)  $      10,543           ($944)
                                                                   ==============  ==============  ==============  ==============

BASIC AND DILUTED INCOME (LOSS) PER SHARE                          $        1.35          ($0.23)  $        1.68          ($0.87)
                                                                   ==============  ==============  ==============  ==============

WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING                                                   8,719,307       1,174,662       6,272,332       1,081,806
                                                                   --------------  --------------  --------------  --------------
</TABLE>


                                        2
<PAGE>
<TABLE>
<CAPTION>
                                  ATSI COMMUNICATIONS, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                                (In thousands)
                                                  (unaudited)

                                                    Three months ended April 30,  Nine months ended April 30,
                                                        2005           2004           2005           2004
                                                    -------------  -------------  -------------  -------------
<S>                                                 <C>            <C>            <C>            <C>
Net income (loss) to common stockholders            $      11,780         ($273)  $      10,543         ($944)

  Foreign currency translation adjustment                       -             -               -             -
                                                    -------------  -------------  -------------  -------------

Comprehensive income (loss) to common stockholders  $      11,780         ($273)  $      10,543         ($944)
                                                    =============  =============  =============  =============
</TABLE>


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                ATSI COMMUNICATIONS, INC. AND SUBSIDIARIES
                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
                                              (In thousands)
                                                (unaudited)

                                                                            Nine months ended April 30,
                                                                               2005             2004
                                                                          ---------------  ---------------
<S>                                                                       <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS)                                                         $       10,657            ($676)
Adjustments to net income (loss):
    Gain on disposal of investment                                               (12,104)
    Debt forgiveness income                                                         (460)               -
Adjustments to reconcile net loss to cash used in operating activities:
    Depreciation and amortization                                                     79                6
    Loss on an unconsolidated affiliate                                                -               85
    Non-cash issuance of stock grants and options, employees                         474                -
    Non-cash issuance of common stock  and warrants for services                     944               32
    Provision for losses on accounts receivable                                        4                4
    Changes in operating assets and liabilities:
  Increase in
      Accounts receivable                                                           (120)             (11)
      Prepaid expenses and other                                                     (18)             (21)
    Increase  in
      Accounts payable                                                                62              116
      Accrued liabilities                                                             55               78
                                                                          ---------------  ---------------
Net cash used in operating activities                                               (427)            (387)
                                                                          ---------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property & equipment                                                   (8)               -
  Cash proceeds from sale of ATSICOM                                                   -              187
  Investment in joint venture  in ATSICOM                                              -              (47)
  Acquisition of business                                                             (8)               -
                                                                          ---------------  ---------------
Net cash (used in) provided by investing activities                                  (16)             140
                                                                          ---------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                                                        810              215
  Payments on notes payable                                                         (810)              (6)
  Proceeds from the exercise of warrants                                             414                -
  Principal payments on capital lease obligation                                      (2)               -
                                                                          ---------------  ---------------
Net cash provided by financing activities                                            412              209
                                                                          ---------------  ---------------
DECREASE IN CASH                                                                     (31)             (38)
CASH AND CASH EQUIVALENTS, beginning of period                                        94              140
                                                                          ---------------  ---------------
CASH AND CASH EQUIVALENTS, end of period                                  $           63   $          102
                                                                          ===============  ===============

NON-CASH TRANSACTIONS
  Issuance of common stock for conversion of debt                         $          829                -
  Issuance of common stock for purchase of intangible assets                          24                -
</TABLE>


                                        4
<PAGE>
                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 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 of ATSI Communications Inc. filed with
the  SEC  on  Form  10-K  for  the  year ended July 31, 2004.  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,  2004,  as  reported  in  the  Form  10-K,  have  been omitted.

NOTE 2 - STOCK BASED COMPENSATION

ATSI  accounts  for its employee stock-based compensation plans under Accounting
Principles  Board  ("APB")  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees.  ATSI granted 2,104,001 options to purchase common stock to employees
in  the  nine months ending April 30, 2005.  Sixty percent of these options vest
immediately  and  the  remaining  balance  vest over three years.  ATSI recorded
compensation expense of $42,000 under the intrinsic value method during the nine
months  ended  April  30,  2005.

The following table illustrates the effect on net loss and net loss per share if
ATSI  had applied the fair value provisions of FASB Statement No.123, Accounting
for  Stock-Based  Compensation,  to  stock-based  employee  compensation.

<TABLE>
<CAPTION>
                                   Three Months Ended          Nine Months Ended
                                        April 30,                  April 30,
                                    2005         2004          2005         2004
                                 -----------  -----------  ------------  -----------
<S>                              <C>          <C>          <C>           <C>
  Net income (loss) to common
  shareholders, as reported      $11,780,000  $ (273,000)  $10,543,000   $ (944,000)
  Add: stock based
     compensation
     determined under
     intrinsic value-
     based method                          -           -        42,080            -

  Less: stock based
     compensation
     determined under
     fair value-
     based method                          -           -    (1,000,493)           -
                                 -----------  -----------  ------------  -----------
     Pro forma net income


                                        5
<PAGE>
     (loss)                      $11,780,000  $ (273,000)  $ 9,584,587   $ (944,000)
                                 ===========  ===========  ============  ===========

  Basic and diluted net income
     (loss) per common share:
     As reported                 $      1.35  $     (.23)  $      1.68   $     (.87)
     Pro forma                   $      1.35  $     (.23)  $      1.52   $     (.87)
</TABLE>

Additionally,  during  the nine months ended April 30, 2005, ATSI issued 900,000
shares to its employees and 333,170 shares to consultants with a market value of
$432,000  and  $132,240,  respectively.

NOTE 3 - GAIN ON DISPOSAL OF INVESTMENT

During  the  quarter ending April 30, 2005 ATSI recognized a gain on disposal of
investment of approximately  $12,104,000. The gain on disposal of investment was
associated  with  the  disposal  of  ATSI's  subsidiaries,  American  TeleSource
International,  Inc.  (ATSI Texas) and TeleSpan, Inc. (TeleSpan). These entities
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 ATSI's 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  center  assets  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 represents all
the  proceeds from the sale of these entities.  The Chapter 7 Bankruptcy Trustee
has  managed  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 manage all claims with the related
creditors.  ATSI  did  not  receive  any  creditor  objections  to  these  court
proceedings.

The  following  represents  the  pre-petition  liabilities  of  the  bankrupt
subsidiaries,  net  of  assets  (in  thousands):

<TABLE>
<CAPTION>
<S>                                            <C>
               Accounts payable                $ 7,496
               Accrued liabilities               2,015
               Notes payable                       386
               Capital leases                    2,207
                                               -------

                   TOTAL CURRENT LIABILITIES:  $12,104
                                               =======
</TABLE>

NOTE 4 - NOTES PAYABLE

During  the  nine  months of fiscal 2005, ATSI borrowed a total of $414,000 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>
          August 23, 2004          $ 25,000  August 23, 2005
          August 30, 2004            25,000  August 30, 2005


                                        6
<PAGE>
          ORIGINATION DATE          AMOUNT     MATURITY DATE
          -----------------------  --------  ------------------

          September 15, 2004         25,000  September 15, 2005
          September 20, 2004        150,000  September 20, 2005
          October 8, 2004            25,000  October 8, 2005
          October 12, 2004           25,000  October 12, 2005
          October 15, 2004           10,000  October 15, 2005
          October 24, 2004           15,000  October 24, 2005
          November 5, 2004           25,000  November 5, 2005
          November 15, 2004          15,000  November 15, 2005
          December 1, 2004           10,000  December 1, 2005
          December 21, 2004          10,000  December 21, 2005
          January 4, 2005            10,000  January 4, 2006
          February 2, 2005           10,000  February 2, 2006
          February 3, 2005            4,000  February 3, 2006
          February 17, 2005          10,000  February 3, 2006
          March 22, 2005             10,000  March 22, 2006
          April 6, 2005              10,000  April 6, 2006
                                   --------

             TOTAL DURING FY 2005  $414,000
                                   ========
</TABLE>

On November 1, 2004, ATSI entered into a note payable with Franklin Cardwell and
Jones,  PC,  for  $103,454  associated  with  legal  and  professional  services
previously  rendered.  The  promissory  note  payable  has  a  maturity  date of
December  1, 2005 and has an annual interest rate of 6%.  The note is secured by
ATSI  equipment  and accounts receivable. Beginning November 1, 2005, the holder
of  the  note may convert all or any part of the outstanding balance and accrued
and  unpaid  interest  to  shares  of  ATSI's  common  stock equal to the amount
converted  divided by the product of (a) 0. 90 times (b) the five-day average of
the  last  sales  of  the  common  stock  prior  to  the  conversion  day.

NOTE 5 - WARRANTS

On  October  13, 2003, ATSI entered into consulting agreements for twelve months
with  certain  individual  affiliates  of Recap Marketing & Consulting, LLP that
provided  for  the  issuance  of  compensation  warrants  to purchase a total of
3,900,000  shares of ATSI's common stock at prices as indicated in the following
table.  These warrants expire on November 30, 2005.  At issuance ATSI recognized
$7,053,000  of  non-cash  compensation  expense  associated with the issuance of
these  warrants.

<TABLE>
<CAPTION>
                         COMMON SHARES  EXERCISE PRICE
                         -------------  ---------------
<S>                                     <C>
                           2,000,000    $    0.01/share
                             800,000    $    0.25/share
                             850,000    $    0.50/share
                             250,000    $    0.75/share
</TABLE>

During  the  first  nine  months  of fiscal 2005, individual affiliates of Recap
Marketing  &  Consulting  LLP  elected  to exercise 3,799,930 warrants and Recap
Marketing  &  Consulting  LLP  forgave  notes  in  the amount of $810,000 as the
conversion price. The exercise price of the warrants ranged from $0.01 per share
to  $0.50  per  share.

On  November  1, 2004, ATSI extended the consulting agreements for an additional
six  months  with certain individual affiliates of Recap Marketing & Consulting,
LLP  that provided for the issuance of compensation warrants to purchase a total
of  1,000,000  shares of ATSI's common stock at price of $0.50 per share.  These
warrants  expire  on  October  31,


                                        7
<PAGE>
2005.  At  signing of the extension to the consulting agreements ATSI recognized
$591,000  of non-cash compensation expense associated with the issuance of these
warrants.

On  March  1,  2005, ATSI amended the extension to the consulting agreement with
certain  individuals'  affiliates  of  Recap  Marketing  &  Consulting,  LLP and
extended  the  agreement  for  an  additional  12  months.  The amendment to the
agreements  allows for the repricing of 1,250,000 compensation warrants at a new
exercise  price's ranging from $0.30 per share to $0.40 per share. At signing of
the  amendment  to  the  extension  of the consulting agreement, ATSI recognized
$220,000  of non-cash compensation expense associated with the issuance of these
warrants.


NOTE 6 - SETTLEMENT AND RESTRUCTURING OF DEBT

On  October 1, 2004, ATSI entered into a Settlement Agreement and Mutual release
with  Alfonso  Torres  Roqueni,  the  former  owner  of  the  concession license
purchased  by ATSICOM in July 2000.  Under the settlement agreement amounts owed
of $1,360,000 were restructured and settled in exchange for the issuance by ATSI
of  687,600 common shares for the payment of $860,000 of the related obligation.
The common shares were considered issued at $1.25 per share.  However, if on the
measurement  date of April 1, 2005, the average closing price of the ATSI common
stock  for  the ten (10) trading days immediately preceding the measurement date
is  below  $1.15,  ATSI  will  be  required to issue an additional 59,791 common
shares.  If, however, the average closing price of the ATSI common stock for the
ten  (10) trading days immediately preceding the measurement date is at or above
$1.15,  no  other consideration will be given and the 687,600 shares issued will
be  considered  as  the  final  consideration.  Additionally  as  part  of  the
settlement, ATSI issued a promissory note for the remaining balance of $500,000.
The note accrues interest at the rate of 6% per annum and has a maturity date of
October 1, 2007, with no monthly payments. ATSI recognized a gain of $235,000 on
the  settlement  of  this  debt.

On October 26, 2004, ATSI entered into a Settlement Agreement and Mutual release
with  Infraestructura  Espacial,  S.A  de  C.V.  and Tomas Revesz, a former ATSI
director.  Under  the  settlement  agreement,  ATSI  issued 30,000 shares of its
common  stock for the settlement of all principal and interest owed under a note
payable  in  the  amount  of $250,000.  This note was originally entered into on
March  22,  2001  and  subsequently  restructured  on  September  12, 2002. ATSI
recognized  a  gain  of  $225,000  on  the  settlement  of  this  debt.

On  March 28, 2005, ATSI entered into a Settlement Agreement (at mediation) with
James  C.  Cuevas, Raymond G. Romero, Texas Workforce Commission and ATSI-Texas.
The  Settlement  Agreement was subject to board approval. The Board of Directors
met  on April 28, 2005 and approved the Settlement Agreement, subsequently; ATSI
issued 169,280 shares of its common stock for the settlement of all unpaid wages
in  the  amount  of $90,000. This claim was originally filed in December 2003 by
ATSI  as a cause of action in the 407th Judicial District of Bexar County, Texas
against  James  C.  Cuevas,  Raymond  G.  Romero, Texas Workforce Commission and
ATSI-Texas  whereby  ATSI  was seeking judicial review on the decision issued by
the  Texas Workforce Commission were it awarded a claim for unpaid wages against
ATSI.

NOTE 7 - ACQUISITION OF A LOCAL EXCHANGE CARRIER COMPANY

On  August  1, 2004, ATSI entered into an Asset Purchase Agreement with Hinotel,
Inc.,  a  Hispanic  owned  Competitive  Local Exchange Carrier ("CLEC") based in
South  Texas.  The  assets  purchased  under  the  agreement  included Hinotel's
customer base, a customer management and billing system, and supplier contracts.
Additionally,  the  transaction included the assignment and transfer of the CLEC
license  in  the  State  of Texas.  The purchase price of the assets was $32,000
paid  in  40,000  shares  of  ATSI  common  stock  and  $8,000  in  cash.

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


                                        8
<PAGE>
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,
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 nine months ended April 30, 2005
and  2004.  It  should  be  read  in conjunction with our Consolidated Financial
Statements,  the  Notes  thereto and the other financial information included in
the  annual report on Form 10-K filed with the SEC on November 8, 2004.  As used
in  this section, the term "fiscal 2005" means the year ending July 31, 2005 and
"fiscal  2004"  means  the  year  ended  July  31,  2004.

GENERAL

     We  are  an  international  telecommunications  carrier  that  utilizes the
Internet  to  provide economical international telecommunications services.  Our
current  operations  consist of providing digital voice communications over data
networks  and  the  Internet  using  Voice-over-Internet-Protocol  ("VoIP").  We
provide  high quality voice and enhanced telecommunication services to carriers,
telephony  resellers  and  other  VoIP  carriers through various agreements with
local  service providers in the United States, Mexico, Asia, the Middle East and
Latin  America  utilizing VoIP telephony services.  Our services are as follows:

     Carrier Services: We provide VoIP 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, Asia, the Middle East and Latin
     America.  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

     On  August  1, 2004, we acquired a Local Exchange Carrier ("CLEC") based in
South  Texas.  This acquisition served as a gateway to reach out to the Hispanic
communities residing along the US and Mexico border.  Our strategy is to provide
reliable  and  affordable  local  and  long distance services to the underserved
Hispanic  community  through  Texas.  Our entry to the retail services under our
TeleFamilia  brand  and  subsidiary  will  allow  us  to  leverage  our existing
international  VoIP  network with additional services that have the potential to
deliver  higher margins than our wholesale international VoIP services.  We have
deployed  various  postpaid  and  prepaid  retail  services  and  generated
approximately  $72,500  in  retail services revenue during the nine months ended
April  30,  2005.

     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,  2005.  Our  operating  losses  were $8,485,000, for the year
ending  July  31,  2004.  We  had  an operating loss of $1,874,000, for the nine
months ended April 30, 2005 and a working capital deficit of $4,431,000 at April
30,  2005.  Due  to  such  recurring  losses, as well as the negative cash flows


                                        9
<PAGE>
generated  from  our operations and our substantial working capital deficit, the
auditor's  opinion  on  our  financial  statements  as  of  July  31, 2004 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  July  31,  2005.

     We have experienced difficulty in paying our vendors and lenders on time in
the past.  As a result, during the nine months ended April 30, 2005 management
continued to pursue different avenues for funding and we entered into various
short-term convertible promissory notes in the aggregate amount of $414,000.
These funds have allowed the Company to pay those operating and corporate
expenses that were not covered by our current cash inflows from operations.  We
will continue to require additional funding until the cash inflows from
operations are sufficient to cover the monthly operating expenses.  There is no
assurance that we will be successful in securing additionally funding over the
next twelve months.

RESULTS OF OPERATIONS

The following table sets forth certain items included in the Company's results
of operations in dollar mounts and as a percentage of total revenues for the
three and nine month period ended April 30, 2005 and 2004.

                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                     Three months ended April 30,       Nine months ended April 30,
                                                  ---------------------------------  ---------------------------------
                                                         2005            2004              2005             2004
                                                  ----------------  ---------------  ----------------  ---------------
                                                                              (Unaudited)
                                                     $        %        $       %        $        %        $       %
                                                  --------  ------  -------  ------  --------  ------  -------  ------
<S>                                               <C>       <C>     <C>      <C>     <C>       <C>     <C>      <C>
Operating revenues
------------------
Services
  Carrier services                                $ 1,727      96%  $  484      86%  $ 3,943      95%  $  726      82%
  Network services                                     70       4%      77      14%      217       5%     161      18%
                                                  --------  ------  -------  ------  --------  ------  -------  ------

Total operating revenues                            1,797     100%     561     100%    4,160     100%     887     100%

Cost of services (Exclusive of depreciation
and amortization, shown below)                      1,660      92%     501      89%    3,854      93%     768      87%
                                                  --------  ------  -------  ------  --------  ------  -------  ------

Gross Margin                                          137       8%      60      11%      306       7%     119      13%

Selling, general and administrative
expense                                               140       8%     164      29%      314       8%     413      47%

Legal and professional fees                            60       3%      52       9%      365       9%     201      23%

Non-cash issuance of common stock  and warrants       220      12%       -       0%      944      23%      30       3%
for services

Non-cash stock-based compensation, employees            -       0%       -       0%      474      11%       -       0%

Bad debt expense                                        -       0%       -       0%        4       0%       4       0%

Depreciation and amortization                          32       2%       6       1%       79       2%       6       1%
                                                  --------  ------  -------  ------  --------  ------  -------  ------

Operating income (loss)                              (315)    -18%    (162)    -29%   (1,874)    -45%    (535)    -60%

Debt forgiveness income                                 -       0%       -       0%      460      11%       -       0%
Gain on disposal of investment                     12,104     674%       -       0%   12,104     291%       -       0%
Other income (expense)                                 29       2%     (29)     -5%      (33)     -1%    (141)    -16%
                                                  --------  ------  -------  ------  --------  ------  -------  ------

Net income (loss)                                  11,818     658%    (191)    -34%   10,657     256%    (676)    -76%
                                                  --------  ------  -------  ------  --------  ------  -------  ------

Less: preferred stock dividends                       (38)     -2%     (82)    -15%     (114)     -3%    (268)    -30%
                                                  --------  ------  -------  ------  --------  ------  -------  ------

Net income (loss) to applicable to
common shareholders                               $11,780     656%   ($273)    -49%  $10,543     253%   ($944)   -106%
                                                  ========          =======          ========          =======
</TABLE>

THREE MONTHS ENDED APRIL 30, 2005 COMPARED TO THREE MONTHS ENDED APRIL 30, 2004


                                       11
<PAGE>
Operating Revenues.  Consolidated operating revenues increased by 220% between
periods from $561,000 for the quarter ended April 30, 2004 to $1,797,000 for the
quarter ended April 30, 2005.

     Carrier  services  revenues  increased approximately by $1,243,000, or 257%
from  the quarter ended April 2004 to the quarter ended April 2005.  Our carrier
traffic  increased  from approximately 19.7 million minutes in the quarter ended
April  30,  2004  to approximately 47.6 million minutes during the quarter ended
April  30,  2005.  The  increase  in  revenue  and carrier traffic can mainly be
attributed  to  the  growth in VoIP carrier services since the implementation of
the  NexTone  VoIP  soft-switch  during  the  last  quarter  of  fiscal  2004.

     Network  services revenues decreased by approximately 9% or $7,000 from the
quarter  ended April 30, 2004 to the quarter ended April 30, 2005.  The decrease
in  network  services  revenue  is  primarily  due to termination of the network
service  agreement  with one of our customers. As a result, ATSI will loss about
$22,000  of  monthly  revenue.

     Cost  of  Services  (Exclusive  of  depreciation  and  amortization).  The
consolidated  cost  of  services  increased by approximately $1,159,000 from the
quarter  ended April 30, 2004 to the quarter ended April 30, 2005.  The increase
in  cost  of  services  is  a  direct result of the increase in carrier services
revenue  and  network services revenue.  As mentioned above, our carrier traffic
increased from approximately 19.7 million minutes during the quarter ended April
30,  2004  to  approximately 47.6 million minutes in the quarter ended April 30,
2005,  thus  increasing  our  cost  of  services  between  quarters.

     Selling,  General  and  Administrative  (SG&A)  Expenses.  SG&A  expenses
decreased by approximately $24,000, or 15% from the quarter ended April 30, 2004
to  the  quarter  ended  April  30,  2005.  The  decrease  is attributable to an
adjustment  of  $16,408  in salaries and wages and a reversal of an over-accrual
for  services  previously  recognized.

     Legal  and  professional  Fees.  Legal  and  professional fees increased by
approximately  $8,000,  or  15%  from  the  quarter  ended April 30, 2004 to the
quarter  ended  April  30,  2005.  During  the quarter ended April 30, 2005, the
company  incurred  approximately  $20,000  in  legal  and  professional services
associated  with  various  litigations  and  settlements.  These  legal  and
professional expenses were not incurred during the quarter ended April 30, 2004.

     Non-cash  issuance  of  common  stock  and warrants for services.  Non-cash
issuance  of  common  stock and warrants for services increased by $220,000 from
the  quarter  ended  April  30,  2004 to the quarter ended April 30, 2005.  This
increase  is  primarily due to recognition of  $220,000 in non-cash compensation
expense  associated  with  the  repricing  of  the  warrants  granted  under the
amendment  to  the  consulting  agreements  entered into with certain individual
affiliates of Recap Marketing & Consulting, LLP.  The amendment to the extension
to  the  consulting agreement provided for the issuance of compensation warrants
to  purchase  a  total  of  1,250,000  shares  of ATSI's common stock at price's
ranging  from  $0.30  per  share  to  $0.40  per  share.

     Depreciation  and Amortization.  Depreciation and amortization increased by
$26,000  from  the  quarter  ended April 30, 2004 to the quarter ended April 30,
2005.  The increase is attributed to the recognition of depreciation expense and
amortization  on  the NexTone VoIP soft-switch that was acquired during the last
quarter  of  fiscal  2004.

     Operating  Income  (Loss).  The Company's operating income (loss) increased
by  approximately  $153,000  or 94% from the quarter ended April 30, 2004 to the
quarter  ended  April  30,  2005.  The  increase  in  operating income (loss) is
attributed to the recognition of $220,000 of non-cash warrant expense associated
with the repricing of the warrants granted under the amendment to the consulting
agreements  entered into with certain individual affiliates of Recap Marketing &
Consulting,  LLP.  The increase in the operating loss was slightly offset by the
increase in gross profit margin of $77,000 from the quarter ended April 30, 2004
to  the  quarter  ended  April  30,  2005.


                                       12
<PAGE>
     Gain  on disposal of investment.   During the quarter ending April 30, 2005
ATSI  recognized a gain on disposal of investment of approximately  $12,104,000.
The  gain  on  disposal of investment was associated with the disposal of ATSI's
subsidiaries, American TeleSource International, Inc. (ATSI Texas) and TeleSpan,
Inc.  (TeleSpan).  These  entities  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  have  ceased  operations.

     Other  income (expense).  Other income (expense) decreased by approximately
$58,000 or 200% from the quarter ended April 30, 2004 to the quarter ended April
30,  2005.  The decrease in other income (expense) is attributed to the decrease
in  loss in investment in ATSICOM of approximately $25,000 recognized during the
quarter  ended  April  30, 2004 associated with our portion of the losses on our
investment  in ATSICOM.  During the quarter ended April 30, 2005 the Company did
not  recognized  any  loss  associated  to  ATSICOM.

     Preferred  Stock Dividends.  Preferred Stock Dividends expense decreased by
approximately  $44,000 between periods, from $82,000 for the quarter ended April
30, 2004 to $38,000 during the quarter ended April 30, 2005.  During fiscal 2004
we  converted  all  Redeemable Preferred Series F and Series G shares to common.
As  a result of these conversions, no dividends were incurred during the quarter
ended  April  2005  related  to  these  securities.

     Net  income  (loss)  to Common Stockholders.  The net income (loss) for the
quarter  ended  April  30, 2005 decrease to $11,780,000 net income from $273,000
net  (loss)  for  the  quarter ended April 30, 2004.  The decrease in net income
(loss)  to common stockholders is mainly attributed to the recognition of a gain
on disposal of investment of $12,104,000. The gain on disposal of investment was
associated  with  the  disposal  of  ATSI's  subsidiaries,  American  TeleSource
International,  Inc.  (ATSI Texas) and TeleSpan, Inc. (TeleSpan). These entities
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  have  ceased  operations. The
increase on net income (loss) was slightly offset by the recognition of $220,000
of  non-cash  warrant  expense  associated  with  the  repricing of the warrants
granted  under  the  amendment  to  the  consulting agreements entered into with
certain  individual  affiliates  of  Recap  Marketing  &  Consulting,  LLP.

NINE MONTHS ENDED APRIL 30, 2005 COMPARED TO NINE MONTHS ENDED APRIL 30, 2004

Operating  Revenues.  Consolidated  operating revenues increased by 369% between
periods  from  $887,000 for the nine months ended April 30, 2004 to $4.2 million
for  the  nine  months  ended  April  30,  2005.

     Carrier  services revenues increased by approximately $3.2 million, or 443%
from  the nine months ended April 2004 to the nine months ended April 2005.  Our
VoIP  carrier  traffic  increased from approximately 19.1 million minutes during
the nine months ended April 30, 2004 to approximately 113 million minutes during
the  nine  months  ended  April  30,  2005.  The increase in revenue and carrier
traffic  can  mainly  be attributed to the growth in VoIP carrier services since
the  implementation  of  the NexTone VoIP soft-switch during the last quarter of
fiscal  2004.

     Network  services  revenues increased approximately 35% or $56,000 from the
nine  month period ended April 30, 2004 to the nine month period ended April 30,
2005.  The increase in network services revenue is primarily due to the purchase
and  assignment  of  a  network  services  contract  from  American  TeleSource
International  de  Mexico  S.A  de  C.V.  (ASTIMEX).  Under  the  assignment and
purchase agreement with ATSIMEX, we acquired the remaining term of the contract,
which  extended  from  February  2004  through  June  2004 and generated monthly
revenues  of  approximately  $22,000.  The  agreement  was terminated during the
quarter  ended  April  30, 2005 and as a result we expect a reduction of network
service  revenue  by  $22,000  per  month.


                                       13
<PAGE>
     Cost  of  Services  (Exclusive  of  depreciation  and  amortization).  The
consolidated  cost  of services increased by approximately $3.1 million, or 402%
from  the  nine  months  ended April 30, 2004 to the nine months ended April 30,
2005.  The  increase  in  cost of services is a direct result of the increase in
carrier  services revenue and network services revenue.  As mentioned above, our
carrier  traffic  increased  from  approximately 19.1 million minutes during the
nine  months  ended  April  30, 2004 to approximately 113 million minutes in the
nine  months  ended April 30, 2005, thus increasing our cost of services between
periods.

     Selling,  General  and  Administrative  (SG&A)  Expenses.  SG&A  expenses
decreased  by approximately $99,000, or 24% from the nine months ended April 30,
2004  to  the nine months ended April 30, 2005.  The decrease is attributable to
an  adjustment  of  $108,648  in  salaries  and  wages  and  a  reversal  of  an
over-accrual  for  services  previously  recognized.

     Legal  and  professional  Fees.  Legal  and  professional fees increased by
approximately  $164,000, or 82% from the nine months ended April 30, 2004 to the
nine  months  ended  April  30,  2005.  The  increase  is  attributable  to  the
recognition  of  approximately  $150,000  in professional fees associated with a
marketing  campaign  that  commenced  during  the  first quarter of fiscal 2005.
Additionally,  during  the nine month period we recognized approximately $90,000
in  legal  fees  associated  to  the lawsuit for stock fraud and manipulation by
various  institutions.

     Non-cash  issuance  of  common  stock  and warrants for services.  Non-cash
issuance  of  common  stock and warrants for services increased by $914,000 from
the  nine  months  ended April 30, 2004 to the nine months ended April 30, 2005.
This  increase  is  primarily  due  to  recognition of approximately $811,000 in
non-cash  compensation expense associated with the consulting agreements entered
into  with  certain  individual affiliates of Recap Marketing & Consulting, LLP.

     Non-cash  stock-based  compensation,  employees.  Non-cash  compensation
expense  to employees increased by $474,000 from the nine months ended April 30,
2004  to  the  nine months ended April 30, 2005.  This increase is attributed to
recognition  of  approximately  $474,000  in  non-cash  compensation  expense
associated with the grant of stock options and stock grants to our employees and
board  of  directors.

     Bad  debt expense.  Bad debt expense remained consistent at $4,000 over the
nine  months  ended  April  30,  2004  and the nine months ended April 30, 2005.
During  the  nine  months  ended April 30, 2005 we recognized $4,000 in bad debt
expense  associated  with  the  write-off  of  a carriers services customer that
ceased  operations.

     Depreciation  and Amortization.  Depreciation and amortization increased by
$73,000 from the nine months ended April 30, 2004 to the nine months ended April
30, 2005.  The increase is attributed to the recognition of depreciation expense
and  amortization  on  the NexTone VoIP soft-switch that was acquired during the
last  quarter  of  fiscal  2004.

     Operating  income  (loss).  The Company's operating income (loss) increased
by approximately $1,339,000 or 250% from the nine months ended April 30, 2004 to
the  nine  months  ended  April  30,  2005.  The  increase  in operating loss is
attributed to the recognition of $811,000 in non-cash warrant expense associated
with  the  consulting agreements entered into with certain individual affiliates
of Recap Marketing & Consulting, LLP and the recognition of $474,000 in non-cash
stock  based  compensation  expense  associated with the stock options and stock
grants  awarded to the company employees and board of directors. The increase in
non-cash warrant and compensation expense was offset slightly by the increase in
gross  margin  of  approximately  $187,000.

     Debt  forgiveness  income.  Our  debt  forgiveness  income  increased  by
approximately  $460,000  from  the  nine months ended April 30, 2004 to the nine
months ended April 30, 2005.  During the nine month period ended April 30, 2005,
we  negotiated  and exchanged various liabilities for equity.  These settlements
were  related  to  the  settlement  of  the


                                       14
<PAGE>
$859,500  liability  with  Alfonso  Torres  Roqueni,  the  former  owner  of the
concession  license acquired in July 2000, and the settlement of a $250,000 note
payable  with  Infraestructura  Espacial, S.A de C.V. and Tomas Revesz, a former
ATSI  director.  The debt forgiveness income was based on the difference between
the  market  price  of  ATSI equity at the time of issuance and the market price
calculated  at  the  time  of  the  settlement  of  the  debt.

     Gain  on disposal of investment.   During the nine month period ended April
30,  2005  ATSI  recognized  a  gain  on disposal of investment of approximately
$12,104,000. The gain on disposal of investment was associated with the disposal
of ATSI's subsidiaries, American TeleSource International, Inc. (ATSI Texas) and
TeleSpan,  Inc. (TeleSpan). These entities 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  have  ceased  operations.

     Other  income (expense).  Other income (expense) decreased by approximately
$108,000  or  77%  from  the nine months ended April 30, 2004 to the nine months
ended  April  30, 2005.  The decrease in other income (expense) is attributed to
the  decrease  in  loss  in  investment  in  ATSICOM  of  approximately  $85,000
recognized  during  the  nine  months  ended  April 30, 2004 associated with our
portion  of  the  losses  on  our investment in ATSICOM.  During the nine months
ended  April  30,  2005  the  Company  did  not  incurred  any  loss in ATSICOM.

     Preferred  Stock Dividends.  Preferred Stock Dividends expense decreased by
approximately  $154,000 between periods, from $268,000 for the nine months ended
April  30, 2004 to $114,000 during the nine months ended April 30, 2005.  During
fiscal  2004  we converted all Redeemable Preferred Series F and Series G shares
to  common.  As a result of these conversions, no dividends were incurred during
the  nine  months  ended  April  2005  related  to  these  securities.

     Net  income  ( loss) to Common Stockholders.  The net income (loss) for the
nine  months  ended  April  30,  2005  decreased  to $10,543,000 net income from
$944,000  net  (loss)  for the nine months ended April 30, 2004. The decrease in
net income (loss) to common stockholders is mainly attributed to the recognition
of  a  gain  on  disposal  of investment of $12,104,000. The gain on disposal of
investment  was  associated  with  the disposal of ATSI's subsidiaries, American
TeleSource International, Inc. (ATSI Texas) and TeleSpan, Inc. (TeleSpan). These
entities  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 have ceased
operations.  The  gain  on  disposal  of  investment  was offset slightly by the
recognition  of  $811,000  in  non-cash warrant expense and $474,000 in non-cash
stock  based  compensation  expense  associated with the stock options and stock
grants  awarded to the company employees and board of directors. Also, there was
an  increase  in depreciation and amortization of approximately $73,000 from the
nine  months  ended  April  30,  2004  to  the nine months ended April 30, 2005.

LIQUIDITY AND CAPITAL RESOURCES

     Cash  used in operating activities:  During the nine months ended April 30,
2005, operations consumed approximately $427,000 in cash.  This cash consumed by
operations  is  primarily  due  to  the  recognition  of  $474,000  in  non-cash
compensation  expense associated with the stock grants and stock options awarded
to  the  employees and board of directors.  Additionally, we recognized $944,000
in  non-cash  warrant  expense associated with the consulting services agreement
entered  into  during  the second quarter of fiscal 2005.  We also recognized an
increase  in  accounts  payable  of  approximately  $120,000  and an increase in
accrued  liabilities  of  approximately  $18,000.  The  increase  in  accrued
liabilities  and  accounts  payable  is primarily due to the company recognizing
approximately  $56,000 in interest expense associated with various notes and the
accrual  of  preferred  stock  dividends  of  $114,000.  Also,  we recognized an
increase  in  accounts receivables of $62,000 associated with the billing to our
customers  during  the  quarter  ending  April  30, 2005.  We also recognized an
increase in prepaid expenses for $54,000 related to the prepayments/retainers to
our  attorneys  for  legal  services.


                                       15
<PAGE>
     Cash  provided  used  in investing activities: During the nine months ended
April  30,  2005,  the  Company  made various payments for $8,000 related to the
acquisition  of  some  telecommunications equipment acquired during fiscal 2005.
Additionally,  during  the  quarter ended October 31, 2004, ATSI entered into an
Asset  Purchase Agreement with Hinotel, Inc., a Hispanic owned Competitive Local
Exchange  Carrier  ("CLEC") based in South Texas.  The assets purchase under the
agreement  included  Hinotel's  customer base, a customer management and billing
system,  and  supplier  contracts.  The transaction also included the assignment
and  transfer  of the CLEC license in the State of Texas.  The purchase price of
the assets was $31,500, paid in 40,000 shares of ATSI common stock and $7,500 in
cash.

     Cash  provided by financing activities:  During the nine months ended April
30,  2005  we  made  principal  payments  on  our  capital  lease obligation for
approximately  $2,000 and we received $810,000 from the exercise of warrants and
$414,000  from  proceeds  from various notes payables.  In addition, a result of
the  exercise  of  warrants we also recognized payments of $810,000 on our notes
payable.

     Overall,  our  net operating, investing and financing activities during the
nine months ended April 30, 2005 provided a decrease of approximately $31,000 in
cash  balances.  We  intend  to  cover  our  monthly operating expenses with our
remaining  available  cash.  Additionally, we will continue to pursue additional
equity  offerings to cover our deficiencies in cash reserves.  However, there is
no  assurance  that  we  will be able to secure the equity offerings required to
supplement  our  deficiencies  in  cash  reserves.

     Our working capital deficit at April 30, 2005 was approximately $4,831,000.
This represents a decrease of approximately $14,117,000 from our working capital
deficit at July 31, 2004.  The decrease can primarily be attributed to the
recognition of a gain on disposal of investment of $12,104,000. The gain on
disposal of investment was associated with the disposal of ATSI's subsidiaries,
American TeleSource International, Inc. (ATSI Texas) and TeleSpan, Inc.
(TeleSpan). These entities 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
have ceased operations. Additionally, the decrease in working capital deficit is
also attributed to the settlement of various liabilities through the issuance of
common stock.  These settlements were associated with the settlement of $859,500
liability with Alfonso Torres Roqueni, the former owner of the concession
license acquired in July 2000 and the settlement of a $250,000 note payable with
Infraestructura Espacial, S.A de C.V. and Tomas Revesz, a former ATSI director.

Our current liabilities include:

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

          -    $1,171,000  associated  with  the  Series  D Cumulative preferred
               stock.  Of  this  balance,  $942,000  is associated with the full
               redemption  of  this  security  and  $229,000  is  related to the
               accrued  dividends  as  of  April  30,  2005.

          -    $1,327,000  associated  with  the  Series  E Cumulative preferred
               stock.  Of  this  balance, $1,058,000 is associated with the full
               redemption  of  this  security  and  $269,000  is  related to the
               accrued  dividends  as  of April 30, 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


                                       16
<PAGE>
               institutions,  including  Rose  Glen  Capital and Shaar Fund, 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  defendants  that included the
               holders of our Series D and E Redeemable Preferred Stock. We plan
               to  appeal  that decision once a final judgment has been entered.
               These  liabilities  combined  for  a  total  of  approximately
               $2,498,000.  Accounting rules dictate that these liabilities must
               remain  on  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  $1,152,000  of  current  liabilities (net of
assets)  associated  to the discontinued operations of the retail services unit.
This balance is composed primarily of approximately $453,000 owed to the Mexican
taxing authorities related to a note assumed through the acquisition of Computel
and  approximately  $699,000  related to income taxes owed as of April 30, 2005.

ONGOING OPERATIONS

     We  believe  that, based on our limited access to capital resources and our
current  cash  balances, financial 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.

     As outlined in Note 4 to the financial statements, we have incurred amounts
of  debt  to  finance  our working capital requirements.  During the nine months
ended  April  30,  2005,  we borrowed a total of $414,000 from Recap Marketing &
Consulting,  LLP;  to  fund our operating expenses and other corporate expenses.
This  debt  will  be  applied  to  the  payment  of  warrants  issued to certain
individual  affiliates  of  Recap  Marketing  &  Consulting,  LLP.

     We  will  continue to pursue cost cutting or expense deferral strategies in
order  to  conserve  working  capital.  These  strategies  will  limit  the
implementation of our business plan and increase our future liabilities.  We are
dependent  on  our  operations  and  the  proceeds  from  future  debt or equity
investments to fund our operations and fully implement our business plan.  If we
are  unable  to raise sufficient capital, we will be required to delay or forego
some  portion of our business plan, which will have a material adverse effect on
our anticipated results from operations and financial condition.  Alternatively,
we may seek interim financing in the form of private placement of debt or equity
securities.  Such  interim  financing  may not be available in the amounts or at
the  time when is required, and will likely not be on the terms favorable to the
Company.

ITEM 3.  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. 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 fiscal 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 disclosures controls and procedures
are effective as of the end of the fiscal quarter covered by this report, except
in  a  few  areas  that significant adjustments were proposed by the independent
registered  public  accounting  firm. The Company is in the process of improving
its  controls  and  procedures  in  these  areas.


                                       17
<PAGE>
                           PART II.  OTHER INFORMATION

ITEM  1.  LEGAL  PROCEEDINGS

     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. 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 proceedings. Currently we cannot predict the outcome of this litigation or
the  financial  impact  on  our  ongoing  operations.

     On  February  3,  2005  Helen G. Schwartz, Trustee for ATSI Communications,
Inc. (a Texas corporation) and TeleSpan, Inc. filed in the U.S. Bankruptcy Court
for  the  Western  District  of  Texas  an  Adversary  Proceeding  against  ATSI
Communications,  Inc.,  a  Nevada  corporation  alleging  that  ATSI-Nevada  had
received  preferential  payments  as  defined by the U.S. Bankruptcy Code in the
amount  of $510,836.  On March 31, 2005 ATSI filed its response denying any such
payments  were  received  by  ATSI Nevada, formerly ATSI Delaware. A hearing has
been scheduled for September 7, 2005. Currently we cannot predict the outcome of
this  litigation  or  the  financial  impact  on  our  ongoing  operations.

     On  March  28, 2005, we entered into a Settlement Agreement, which resolved
all  claims  in  the  case  filed  in the 407th Judicial District Court of Bexar
County  Texas  by  with  James  C.  Cuevas,  Raymond  G. Romero, Texas Workforce
Commission and ATSI-Texas for unpaid wages. The Settlement Agreement was subject
to  board approval. The Board of Directors met on April 28,2005 and approved the
Settlement Agreement. We subsequently issued 169,280 shares of our common stock.

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

     On April 28, 2005, we issued 169,280 shares of our common stock in
settlement of all claims made by James C. Cuevas, Raymond G. Romero, Texas
Workforce Commission and ATSI-Texas for unpaid wages.  These shares were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act because of the limited size of the group, the direct relationship between us
and the individuals to whom they were issued, the absence of public solicitation
or advertising, and restrictions on resale of the shares.

ITEM  3.  DEFAULTS  UPON  SENIOR  SECURITIES

     As of April 30, 2005, the Company was in arrears with respect to the
declaration of the following dividends payable on outstanding shares of its
Preferred Stock:

<TABLE>
<CAPTION>
<S>                                       <C>
     Series A Cumulative Preferred Stock  $203,000
     Series D Cumulative Preferred Stock   229,000
     Series E Cumulative Preferred Stock   269,000
                                          --------
     TOTAL                                $701,000
                                          ========
</TABLE>

ITEM  6.  EXHIBITS

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

EXHIBIT


                                       18
<PAGE>
<TABLE>
<CAPTION>
NUMBER  DESCRIPTION
<S>     <C>

   4.1  Convertible Promissory Notes issued to Recap Marketing & Consulting, LLP. *

  10.1  Extension of consulting agreements (Amendment No:1) with Hunter M. A. Carr and
        Donald W. Sapaugh. *

  10.2  Settlement Agreement (at mediation) with James C. Cuevas, Raymond G. Romero, Texas Workforce
        Commission and ATSI-Texas. *

  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. *
</TABLE>


                                    SIGNATURE

     In  accordance  with  the  requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        ATSI COMMUNICATIONS, INC.
                                               (Registrant)


Date:  June 14, 2005                    By:     /s/ Arthur L. Smith
       --------------                           -------------------
                                        Name:   Arthur L. Smith
                                        Title:  President and
                                                Chief Executive Officer

Date:  June 14, 2005                    By:     /s/ Antonio Estrada
       --------------                           -------------------
                                        Name:  Antonio Estrada
                                        Title: Corporate Controller
                                               (Principal Accounting and
                                               Principal Financial Officer)


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