| Nevada                                                                            |   | 74-2849995                                    |
|-----------------------------------------------------------------------------------|--------|-----------------------------------------------|
| (State      or Other Jurisdiction ofIncorporation      or Organization)           |   | (I.R.S.      EmployerIdentification      No.) |
|                                                                              |   |                                          |
| 3201      Cherry Ridge                                                            |   |                                          |
| Building      C, Suite 300                                                        |   |                                          |
| San      Antonio, Texas                                                           |   | 78230                                         |
|  (Address      of Principal Executive Offices)                               |   |  (Zip      Code)                         |
|                                                                              |
| (210)      614-7240(Registrant’s      Telephone Number, Including AreaCode) |

| Number      of Shares | Class      Common Stock | As      of             |
|-----------------------|-------------------------|------------------------|
| 52,962,850            | $001.      par value    | December      13, 2010 |

----

|                                                                                                                               | Page                                                                                                   |
|------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|
| PART      I. FINANCIAL INFORMATION                                                                                                 |                                                                                                   |
|                                                                                                                               |                                                                                                   |   |
| Item      1.                                                                                                                       | Financial      Statements                                                                              |   |
|                                                                                                                               |                                                                                                   |   |
| Consolidated      Balance Sheets as of October 31, 2010 and July 31, 2010      (unaudited)                                         | 3                                                                                                      |
| Consolidated      Statements of Operations for the Three Months Ended October 31, 2010and      2009 (unaudited)                    | 4                                                                                                      |
| Consolidated      Statement of Changes in Stockholders’ Deficit for the Three Months Ended      October 31, 2010 (unaudited) | 5                                                                                                      |
| Consolidated      Statements of Cash Flows for the Three Months Ended      October 31, 2010 and 2009 (unaudited)                   | 6                                                                                                      |
| Notes      to Consolidated Financial Statements (unaudited)                                                                        | 7                                                                                                      |
|                                                                                                                               |                                                                                                   |   |
| Item      2.                                                                                                                       | Management’s      Discussions and Analysis of Financial Condition and      Results of Operations | 9 |
|                                                                                                                               |                                                                                                   |   |
| Item      3.                                                                                                                       | Quantitative      and Qualitative Disclosures about Market Risk                                        | 12 |
|                                                                                                                               |                                                                                                   |   |
| Item      4.                                                                                                                       | Controls      and Procedures                                                                           | 12 |
|                                                                                                                               |                                                                                                   |   |
| PART      II. OTHER INFORMATION                                                                                                    |                                                                                                   |
|                                                                                                                               |                                                                                                   |   |
| Item      6.                                                                                                                       | Exhibits                                                                                               | 12 |

----

|                                                                                                                                           |   | October      31, |    |   | July      31, |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|---------|--------|---------------|--------|
|                                                                                                                                           |   | 2010             |    |   | 2010          |   |
|                                                                                                                                           |   |             |    |   |          |   |
| ASSETS                                                                                                                                         |   |             |    |   |          |   |
| CURRENT      ASSETS:                                                                                                                           |   |             |    |   |          |   |
| Cash      and cash equivalents                                                                                                                 |   | $                | 261     |   |          | $      | 73 |   |
| Accounts      receivable, net of allowance for bad debt of $10 and $10,      respectively                                                      |   |             | 645     |   |          |   | 526 |   |
| Prepaid      and other current assets                                                                                                          |   |             | 37      |   |          |   | 48 |   |
| Total      current assets                                                                                                                      |   |             | 943     |   |          |   | 647 |   |
|                                                                                                                                           |   |             |    |   |          |   |   |   |
| LONG-TERM      ASSETS:                                                                                                                         |   |             |    |   |          |   |   |   |
| Deferred      financing fees                                                                                                                   |   |             | 64      |   |          |   | - |   |
| Intangible      assets, net of accumulated amortization of $35 and $16,      respectively                                                      |   |             | 115     |   |          |   | 119 |   |
|                                                                                                                                           |   |             |    |   |          |   |   |   |
| Property      and equipment                                                                                                                    |   |             | 859     |   |          |   | 856 |   |
| Less      - accumulated depreciation                                                                                                           |   |             | (748    | )      |          |   | (727 | ) |
| Net      property and equipment                                                                                                                |   |             | 111     |   |          |   | 129 |   |
|                                                                                                                                           |   |             |    |   |          |   |   |   |
| Total      assets                                                                                                                              |   | $                | 1,233   |   |          | $      | 895 |   |
|                                                                                                                                           |   |             |    |   |          |   |   |   |
| LIABILITIES AND STOCKHOLDERS'      DEFICIT                                                                                                     |   |             |    |   |          |   |   |   |
| CURRENT      LIABILITIES:                                                                                                                      |   |             |    |   |          |   |   |   |
| Accounts      payable                                                                                                                          |   | $                | 550     |   |          | $      | 637 |   |
| Accrued      liabilities                                                                                                                       |   |             | 82      |   |          |   | 106 |   |
| Notes      payable, net of unamortized discount of $0 and $1,      respectively                                                                |   |             | 376     |   |          |   | 409 |   |
| Derivative      liability                                                                                                                      |   |             | 10      |   |          |   | 85 |   |
| Total      current liabilities                                                                                                                 |   |             | 1,018   |   |          |   | 1,237 |   |
|                                                                                                                                           |   |             |    |   |          |   |   |   |
| LONG-TERM      LIABILITIES:                                                                                                                    |   |             |    |   |          |   |   |   |
| Notes      payable                                                                                                                             |   |             | 1,157   |   |          |   | 639 |   |
| Customer      deposits                                                                                                                         |   |             | 115     |   |          |   | 16 |   |
| Total      long-term liabilities                                                                                                               |   |             | 1,272   |   |          |   | 655 |   |
|                                                                                                                                           |   |             |    |   |          |   |   |   |
| Total      liabilities                                                                                                                         |   |             | 2,290   |   |          |   | 1,892 |   |
|                                                                                                                                           |   |             |    |   |          |   |   |   |
| STOCKHOLDERS'      DEFICIT:                                                                                                                    |   |             |    |   |          |   |   |   |
| Preferred      stock, 16,063,000 shares authorized, none issued      and  outstanding                                                |   |             | -       |   |          |   | - |   |
| Common      stock, $0.001 par value, 150,000,000 shares authorized, 52,962,850 and      45,504,120 shares issued and outstanding, respectively |   |             | 53      |   |          |   | 46 |   |
| Additional      paid in capital                                                                                                                |   |             | 73,527  |   |          |   | 73,276 |   |
| Accumulated      deficit                                                                                                                       |   |             | (74,500 | )      |          |   | (74,182 | ) |
| Other      comprehensive income                                                                                                                |   |             | 1       |   |          |   | 1 |   |
| Total      ATSI Communications, Inc. stockholders' deficit                                                                                     |   |             | (919    | )      |          |   | (859 | ) |
| Noncontrolling      interest                                                                                                                   |   |             | (138    | )      |          |   | (138 | ) |
| Total      stockholders' deficit                                                                                                               |   |             | (1,057  | )      |          |   | (997 | ) |
| Total      liabilities and stockholders' deficit                                                                                               |   | $                | 1,233   |   |          | $      | 895 |   |

----

|                                                                                             |   | Three      months ended October 31, |       |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------|------------|
|                                                                                             |   | 2010                                |       |   | 2009 |   |
| OPERATING      REVENUES:                                                                         |   |                                |       |   |   |   |
| VoIP      services                                                                               |   | $                                   | 4,252      |   |   | $ | 4,985 |   |
|                                                                                             |   |                                |       |   |   |   |   |   |
| Total      operating revenues                                                                    |   |                                | 4,252      |   |   |   | 4,985 |   |
|                                                                                             |   |                                |       |   |   |   |   |   |
| OPERATING      EXPENSES:                                                                         |   |                                |       |   |   |   |   |   |
| Cost      of services (exclusive of depreciation and amortization)                               |   |                                | 3,865      |   |   |   | 4,705 |   |
| Selling,      general and administrative expense (exclusive of legal and professional      fees) |   |                                | 577        |   |   |   | 368 |   |
| Legal      and professional fees                                                                 |   |                                | 56         |   |   |   | 98 |   |
| Depreciation      and amortization expense                                                       |   |                                | 25         |   |   |   | 44 |   |
| Total      operating expenses                                                                    |   |                                | 4,523      |   |   |   | 5,215 |   |
|                                                                                             |   |                                |       |   |   |   |   |   |
| OPERATING      LOSS                                                                              |   |                                | (271       | ) |   |   | (230 | ) |
|                                                                                             |   |                                |       |   |   |   |   |   |
| OTHER      INCOME (EXPENSE):                                                                     |   |                                |       |   |   |   |   |   |
| Interest      expense                                                                            |   |                                | (47        | ) |   |   | (43 | ) |
| Total      other expense                                                                         |   |                                | (47        | ) |   |   | (43 | ) |
|                                                                                             |   |                                |       |   |   |   |   |   |
| NET      LOSS                                                                                    |   |                                | (318       | ) |   |   | (273 | ) |
|                                                                                             |   |                                |       |   |   |   |   |   |
| NET      LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST                                            |   |                                | -          |   |   |   | 24 |   |
|                                                                                             |   |                                |       |   |   |   |   |   |
| NET      LOSS ATTRIBUTABLE TO ATSI COMMUNICATIONS, INC.                                          |   | $                                   | (318       | ) |   | $ | (249 | ) |
|                                                                                             |   |                                |       |   |   |   |   |   |
| LOSS      PER SHARE - BASIC AND DILUTED                                                          |   | $                                   | (0.01      | ) |   | $ | (0.01 | ) |
|                                                                                             |   |                                |       |   |   |   |   |   |
| WEIGHTED      AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED                              |   |                                | 45,990,559 |   |   |   | 45,504,120 |   |

----

| ATSI      COMMUNICATIONS, INC. AND SUBSIDIARIES                 |
|-----------------------------------------------------------------|
| CONSOLIDATED      STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT |
| FOR      THE QUARTER ENDED OCTOBER 31, 2010                     |
| (In      thousands, except share amounts)                       |

|                           |   |   |       |   |    |   |   | Additional     |   |   |        |   |   |             |   |   |        |   |    |   |   |
|--------------------------------|--------|--------|------------|--------|---------|--------|--------|----------------|--------|--------|-------------|--------|--------|------------------|--------|--------|-------------|--------|---------|--------|--------|
|                           |   | Common |       |   | Paid-in |   |   | Noncontrolling |   |   | Accumulated |   |   | Other      Comp. |   |   |        |   |
|                           |   | Shares |       |   | Par     |   |   | Capital        |   |   | interest    |   |   | Deficit          |   |   | Income/Loss |   |    | Totals |   |
| BALANCE,      July 31, 2010    |   |   | 45,504,120 |   |    | $      | 46     |           |   | $      | 73,276      |   |   | $                | (138   | )      |        | $      | (74,182 | )      |   |   | 1 |   |   | $ | (997 | ) |
| Stock      option expense      |   |   | 7,458,730  |   |    |   | 7      |           |   |   | 251         |   |   |             | -      |   |        |   | -       |   |   |   | - |   |   |   | 258 |   |
| Net      loss                  |   |   | -          |   |    |   | -      |           |   |   | -           |   |   |             | -      |   |        |   | (318    | )      |   |   | - |   |   |   | (318 | ) |
| BALANCE,      October 31, 2010 |   |   | 52,962,850 |   |    | $      | 53     |           |   | $      | 73,527      |   |   | $                | (138   | )      |        | $      | (74,500 | )      |   |   | 1 |   |   | $ | (1,057 | ) |

----

|                                                                        |   | Three      months ended October 31, |   |
|-----------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                        |   | 2010                                |   |   | 2009 |   |
|                                                                        |   |                                |   |   |   |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                  |   |                                |   |   |   |   |
| Net      loss                                                               |   | $                                   | (318   | ) |   | $ | (273 | ) |
| Adjustments      to reconcile net loss to cash used in operatingactivities: |   |                                |   |   |   |   |   |   |
| Depreciation      and amortization                                          |   |                                | 25     |   |   |   | 44 |   |
| Amortization      of deferred financing fees                                |   |                                | 9      |   |   |   | - |   |
| Issuance      of stock grants and options for services                      |   |                                | 258    |   |   |   | 14 |   |
| Amortization      of debt discount                                          |   |                                | 1      |   |   |   | 12 |   |
| Changes      in operating assets and liabilities:                           |   |                                |   |   |   |   |   |   |
| Accounts      receivable                                                    |   |                                | (119   | ) |   |   | (280 | ) |
| Prepaid      expenses and other                                             |   |                                | 12     |   |   |   | (7 | ) |
| Accounts      payable                                                       |   |                                | (88    | ) |   |   | 115 |   |
| Accrued      liabilities                                                    |   |                                | (18    | ) |   |   | (33 | ) |
| Customer      deposits                                                      |   |                                | 100    |   |   |   | - |   |
| Net      cash used in operating activities                                  |   |                                | (138   | ) |   |   | (408 | ) |
|                                                                        |   |                                |   |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                  |   |                                |   |   |   |   |   |   |
| Investment      in certificates of deposit                                  |   |                                | -      |   |   |   | 264 |   |
| Purchases      of property & equipment                                  |   |                                | (3     | ) |   |   | (15 | ) |
| Net      cash (used in) provided by investing activities                    |   |                                | (3     | ) |   |   | 249 |   |
|                                                                        |   |                                |   |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                  |   |                                |   |   |   |   |   |   |
| Payment      of deferred financing fees                                     |   |                                | (73    | ) |   |   | - |   |
| Payments      on notes payable                                              |   |                                | (200   | ) |   |   | (172 | ) |
| Proceeds      from notes payables                                           |   |                                | 677    |   |   |   | - |   |
| Acquisition      of put option on warrants                                  |   |                                | (75    | ) |   |   | - |   |
| Principal      payments on capital lease obligation                         |   |                                | -      |   |   |   | (1 | ) |
| Net      cash provided by (used in) financing activities                    |   |                                | 329    |   |   |   | (173 | ) |
|                                                                        |   |                                |   |   |   |   |   |   |
| DECREASE      IN CASH AND CASH EQUIVALENTS                                  |   |                                | 188    |   |   |   | (332 | ) |
| CASH      AND CASH EQUIVALENTS, beginning of period                         |   |                                | 73     |   |   |   | 637 |   |
|                                                                        |   |                                |   |   |   |   |   |   |
| CASH      AND CASH EQUIVALENTS, end of period                               |   | $                                   | 261    |   |   | $ | 305 |   |
|                                                                        |   |                                |   |   |   |   |   |   |
| SUPPLEMENTAL      DISCLOSURES:                                              |   |                                |   |   |   |   |   |   |
| Cash      paid for interest                                                 |   | $                                   | 30     |   |   | $ | 25 |   |
| Cash      paid for income tax                                               |   |                                | -      |   |   |   | - |   |
|                                                                        |   |                                |   |   |   |   |   |   |

----

| Outstanding debt consisted of the following: (In      thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | October 31, |   |   | July      31, |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | 2010 |   |   | 2010 |   |
| Note      payable to Alfonso Torres, payable upon maturity, bearing interest of      6.00% per annum, maturing July 31, 2012, unsecured.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $ | 545 |   |   | $ | 537 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Note      payable to ATVF, Scott Crist, Roderick Ciaccio & Vencore Solutions,      payable in monthly installments, bearing interest at 10.00% per annum,      maturing September 10, 2010, collateralized by ATSI's accounts receivables      (other than accounts factored with Wells Fargo), $100,000 certificate of      deposit with Wells Fargo and ATSI's ownership in ATSICOM. Additionally, we      issued 425,000 warrants to the note holders, at an exercise price per      warrant of $0.19. The warrants have the following “Put” and “Call” rights:      Put      right. From and after the second anniversary of the notes payable,      the holder shall have the right to request from ATSI, upon five (5)      Business days prior notice, to acquire from the holders the warrants at a      price $0.39 per warrant. Call      right.  At any time any warrants are outstanding, if the      last sale price of ATSI’s common stock is greater than $.80 per share for      ten (10) consecutive trading days, ATSI shall be entitled to require the      purchaser to exercise the warrants and pay the exercise price therefore      upon five (5) business days written notice. Net of unamortized discount of      $0 and $1, respectively |   |   | - |   |   |   | 133 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Note      payable to San Antonio National Bank payable in monthly installments,      bearing interest at 8.00% per annum, maturing October 25, 2011,      collateralized by ATSI's assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 153 |   |   |   | 189 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Note      payable to ATV Texas Ventures payable in monthly installments, bearing      interest at 12.00% per annum, maturing November 10, 2011, collateralized      by ATSI's assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 57 |   |   |   | 69 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Note      payable to ATV Texas Ventures payable in monthly installments, bearing      interest at 12.00% per annum, maturing January 10, 2012, collateralized by      ATSI's assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 65 |   |   |   | 77 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Note      payable to ATV Texas Ventures payable in monthly installments, bearing      interest at 12.00% per annum, maturing March 10, 2012, collateralized by      ATSI's assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 37 |   |   |   | 43 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Note      payable to ATV Texas Ventures payable in monthly installments, bearing      interest at 12.00% per annum, maturing October 10, 2012, collateralized by      ATSI's assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 200 |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Note      payable to Thermo Credit, LLC.,  interest payment for the first      twenty-three months with a balloon payment on the twenty-fourth month,      maturing August 2, 2012, collateralized by ATSI's accounts receivable.      Bearing an annual interest rate equivalent to the lesser of the maximum      rate and the greater of the prime rate plus 8.25% and 11.5%, a commitment      fee of 2% and weekly monitoring fee of .05%. ATSI is required to maintain      the following financial covenants: 1) A consolidated debt service coverage      ratio, for the 12-month period, of not less than 1.0 as of the last day of      each quarter and 2) A consolidated operating income, for the 12-month      period, of not less than zero as of the last day of each fiscal      year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 476 |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Total      outstanding long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 1,533 |   |   |   | 1,048 |   |
| Current      portion of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | (376 | ) |   |   | (409 | ) |
| Long-term      debt, net of current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   | $ | 1,157 |   |   | $ | 639 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   |   |   |   |
| Payments      on long-term debt of ATSI are due as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |   |   |   |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   |   |   |   | (in      thousands) |   |
| Fiscal      2011                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   | $ | 376 |   |
| Fiscal      2012                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   |   |   |   |   | 1,157 |   |
| Total      payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |   |   |   | $ | 1,533 |   |

----

|   | - | ATSI      granted 1,333,333 common shares to its directors for services      rendered.  The Company recognized stock-based compensation      expense of $40,000 equivalent to the value of the shares calculated      based on the share’s closing price at the grant  date. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | ATSI      granted 6,125,396 common shares to various employees as part of the      Company’s profit sharing plan contribution.  The Company      recognized stock-based compensation expense of $183,762 equivalent to the      value of the shares calculated based on the share’s closing price at the      grant date. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | ATSI      extended the term of existing options totaling 7,359,000 to July 31,      2015.  As a result, the Company recognized incremental      compensation expense of $34,501. |
|--------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | - | 375,000      warrants were cancelled as a result of the warrant holders exercising      their related put rights (see Note2). |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                             |   | Three      months ended October 31, |   |
|--------------------------------------------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                                                             |   | 2010                                |   |   | 2009 |   |   | Variances |   |   | % |   |
| OPERATING      REVENUES:                                                                         |   |                                |   |   |   |   |   |   |   |   |   |   |
| VoIP      services                                                                               |   | $                                   | 4,252  |   |   | $ | 4,985 |   |   | $ | (733 | ) |   |   | -15 | % |
|                                                                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      operating revenues                                                                    |   |                                | 4,252  |   |   |   | 4,985 |   |   |   | (733 | ) |   |   | -15 | % |
|                                                                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost      of services (exclusive of depreciation and amortization, shown      below)             |   |                                | 3,865  |   |   |   | 4,705 |   |   |   | (840 | ) |   |   | -18 | % |
| GROSS      MARGIN                                                                                |   |                                | 387    |   |   |   | 280 |   |   |   | 107 |   |   |   | 38 | % |
|                                                                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,      general and administrative expense (exclusive of legal and professional      fees) |   |                                | 577    |   |   |   | 368 |   |   |   | 209 |   |   |   | 57 | % |
| Legal      and professional fees                                                                 |   |                                | 56     |   |   |   | 98 |   |   |   | (42 | ) |   |   | -43 | % |
| Depreciation      and amortization expense                                                       |   |                                | 25     |   |   |   | 44 |   |   |   | (19 | ) |   |   | -43 | % |
| OPERATING      LOSS                                                                              |   |                                | (271   | ) |   |   | (230 | ) |   |   | (41 | ) |   |   | 18 | % |
|                                                                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| OTHER      INCOME (EXPENSE):                                                                     |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                                            |   |                                | (47    | ) |   |   | (43 | ) |   |   | (4 | ) |   |   | 9 | % |
| Total      other expense, net                                                                    |   |                                | (47    | ) |   |   | (43 | ) |   |   | (4 | ) |   |   | 9 | % |
|                                                                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET      LOSS                                                                                    |   | $                                   | (318   | ) |   | $ | (273 | ) |   | $ | (45 | ) |   |   | 16 | % |
|                                                                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET      LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST                                            |   |                                | -      |   |   |   | 24 |   |   |   | (24 | ) |   |   | -100 | % |
|                                                                                             |   |                                |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| NET      LOSS ATTRIBUTABLE TO      ATSI COMMUNICATIONS, INC.                                     |   | $                                   | (318   | ) |   | $ | (249 | ) |   | $ | (69 | ) |   |   | 28 | % |

----

----

----

| Number | Description                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                    |
| 10.1   | Promissory      note payable and security agreement with ATV Texas Ventures III, LP.,      dated October 10, 2010 in the principal amount of  $200,000. |
|   |                                                                                                                                                    |
| 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 of2002.                |

----

|                         | ATSI COMMUNICATIONS,      INC. |
|------------------------------|--------------------------------|
|                         | (Registrant)                   |
|                         |                           |   |
| Date:      December 13, 2010 | By:                            | /s/ Arthur L. Smith |
|                         | Name:                          | Arthur      L. Smith |
|                         | Title:                         | President      and |
|                         |                           | Chief      Executive Officer |
|                         |                           |   |
| Date:      December 13, 2010 | By:                            | /s/ Antonio Estrada Jr. |
|                         | Name:                          | Antonio      Estrada Jr. |
|                         | Title:                         | Sr.      VP of Finance & Corporate Controller |
|                         |                           | (Principal      Accounting and Principal FinancialOfficer) |

----

| Number |         | Description                                                                                                                                                            |
|--------|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |         |                                                                                                                                                                   |
| 10.1   |         | Promissory      note payable and security agreement with ATV Texas Ventures III, LP.,      dated October  10, 2010 in the principal amount of      $200,000. |
|   |         |                                                                                                                                                                   |
| 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 of2002.                               |

----