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**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION**

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**FORM      10-QSB**

**[**
**Mark      One**
**]      **

| **x** | **QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE                ACT OF                1934**For                the quarterly period ended October 31,                2007 |
|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **o** | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934**For                the transition period from ____________ to                ___________ |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ATSI      COMMUNICATIONS, INC.**

| **Nevada**(State                or Other Jurisdiction ofIncorporation                or Organization) |   | **74-2849995**(IRS                EmployerIdentification                No.) |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|

**3201      Cherry Ridge**

**Building      C, Suite 300**

**San      Antonio, Texas 78230**

**(210)      614-7240**

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**ATSI      COMMUNICATIONS, INC.**

**AND      SUBSIDIARIES**

**QUARTERLY      REPORT ON FORM 10-QSB**

**FOR      THE QUARTER ENDED OCTOBER 31, 2007**

**INDEX**

|                                                                                                         | Page                                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                         |                                                                                                                                          |   |
| **PART                  I. FINANCIAL INFORMATION**                                                      |                                                                                                                                          |
|                                                                                                         |                                                                                                                                          |
| Item                  1. Financial Statements (unaudited)                                                    |                                                                                                                                          |
|                                                                                                         |                                                                                                                                          |   |
|                                                                                                         | Consolidated                  Balance Sheets as of October 31, 2007 and July 31, 2007                                                         | 3 |
|                                                                                                         | Consolidated                  Statements of Operations for the Three Months Ended October 31,                  2007 and                  2006 | 4 |
|                                                                                                         | Consolidated                  Statements of Comprehensive Income (Loss) for the Three                  Months                                 |   |
|                                                                                                         | Ended                  October 31, 2007 and 2006                                                                                              | 5 |
|                                                                                                         | Consolidated                  Statement of Changes in Stockholders’ Deficit for the Three                  Months                       |   |
|                                                                                                         | Ended                  October 31, 2007 and 2006                                                                                              | 6 |
|                                                                                                         | Consolidated                  Statements of Cash Flows for the Three Months Ended October 31,                  2007 and                  2006 | 7 |
|                                                                                                         | Notes                  to Consolidated Financial Statements                                                                                   | 8 |
|                                                                                                         |                                                                                                                                          |   |
| Item                  2. Management’s Discussions and Analysis and Plan Of                  Operations | 12                                                                                                                                            |
|                                                                                                         |                                                                                                                                          |   |
| 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                  4. Submission of Matters to a Vote of Security Holders                                 | 17                                                                                                                                            |
|                                                                                                         |                                                                                                                                          |
| Item                  5. Other Information                                                                   | 17                                                                                                                                            |
|                                                                                                         |                                                                                                                                          |
| Item                  6. Exhibits                                                                            |                                                                                                                                          |

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**PART      1. FINANCIAL INFORMATION**

**ITEM      1. FINANCIAL STATEMENTS**

|                                                                                                                                                                                                  |   | October                31, |                   | July                31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|------------------------|-------------------------|--------|
|                                                                                                                                                                                                  |   | 2007                       |                   | 2007                    |   |
|                                                                                                                                                                                                  |   |                       |                   |                    |   |
| ASSETS                                                                                                                                                                                                |   |                       |                   |                    |   |   |   |
| CURRENT                ASSETS:                                                                                                                                                                        |   |                       |                   |                    |   |   |   |
| Cash                and cash equivalents                                                                                                                                                              |   | $                          | 513                    |                    | $      | 1,050 |   |
| Accounts                receivable, net of allowance for bad debt of $98 and $0,                respectively                                                                                          |   |                       | 979                    |                    |   | 866 |   |
| Note                receivable                                                                                                                                                                        |   |                       | 150                    |                    |   | 50 |   |
| Prepaid                & other current assets                                                                                                                                                     |   |                       | 107                    |                    |   | 94 |   |
| Total                current assets                                                                                                                                                                   |   |                       | 1,749                  |                    |   | 2,060 |   |
|                                                                                                                                                                                                  |   |                       |                   |                    |   |   |   |
| LONG-TERM                ASSETS:                                                                                                                                                                      |   |                       |                   |                    |   |   |   |
| Certificates                of deposit                                                                                                                                                                |   |                       | 309                    |                    |   | 306 |   |
|                                                                                                                                                                                                  |   |                       |                   |                    |   |   |   |
| PROPERTY                AND EQUIPMENT                                                                                                                                                                 |   |                       | 500                    |                    |   | 499 |   |
| Less                - accumulated depreciation                                                                                                                                                        |   |                       | (321                   | )                       |   | (281 | ) |
| Net                property and equipment                                                                                                                                                             |   |                       | 179                    |                    |   | 218 |   |
|                                                                                                                                                                                                  |   |                       |                        |                    |   |   |   |
| Total                assets                                                                                                                                                                           |   | $                          | 2,237                  |                    | $      | 2,584 |   |
|                                                                                                                                                                                                  |   |                       |                   |                    |   |   |   |
| LIABILITIES                AND STOCKHOLDERS' DEFICIT                                                                                                                                                  |   |                       |                   |                    |   |   |   |
| CURRENT                LIABILITIES:                                                                                                                                                                   |   |                       |                   |                    |   |   |   |
| Accounts                payable                                                                                                                                                                       |   | $                          | 958                    |                    | $      | 1,071 |   |
| Accrued                liabilities                                                                                                                                                                    |   |                       | 99                     |                    |   | 516 |   |
| Current                portion of obligation under capital leases                                                                                                                                     |   |                       | 3                      |                    |   | 3 |   |
| Notes                payable                                                                                                                                                                          |   |                       | 615                    |                    |   | 818 |   |
| Convertible                debentures                                                                                                                                                                 |   |                       | 97                     |                    |   | 76 |   |
| Total                current liabilities                                                                                                                                                              |   |                       | 1,772                  |                    |   | 2,484 |   |
|                                                                                                                                                                                                  |   |                       |                   |                    |   |   |   |
| LONG-TERM                LIABILITIES:                                                                                                                                                                 |   |                       |                   |                    |   |   |   |
| Notes                payable                                                                                                                                                                          |   |                       | 743                    |                    |   | 177 |   |
| Convertible                debentures                                                                                                                                                                 |   |                       | 139                    |                    |   | 158 |   |
| Obligation                under capital leases, less current portion                                                                                                                                  |   |                       | 3                      |                    |   | 3 |   |
| Other                                                                                                                                                                                                 |   |                       | 5                      |                    |   | 4 |   |
| Total                long-term liabilities                                                                                                                                                            |   |                       | 890                    |                    |   | 342 |   |
|                                                                                                                                                                                                  |   |                       |                   |                    |   |   |   |
| Total                liabilities                                                                                                                                                                      |   |                       | 2,662                  |                    |   | 2,826 |   |
|                                                                                                                                                                                                  |   |                       |                   |                    |   |   |   |
| STOCKHOLDERS'                DEFICIT:                                                                                                                                                                 |   |                       |                   |                    |   |   |   |
| Series                D Cumulative Preferred Stock, 3,000 shares authorized, 0 and 742                shares                issued and outstanding                                                    |   |                       | -                      |                    |   | 1 |   |
| Series                E Cumulative Preferred Stock, 10,000 shares authorized, 0 and 1,170                shares                issued and outstanding                                                 |   |                       | -                      |                    |   | 1 |   |
| Common                stock, $0.001 par value, 150,000,000 shares authorized, 39,062,079                and                37,620,513 shares issued and outstanding,                respectively |   |                       |                39 |                    |   | 38 |   |
| Additional                paid in capital                                                                                                                                                             |   |                       | 72,333                 |                    |   | 72,222 |   |
| Accumulated                deficit                                                                                                                                                                    |   |                       | (72,798                | )                       |   | (72,505 | ) |
| Other                comprehensive income                                                                                                                                                             |   |                       | 1                      |                    |   | 1 |   |
| Total                stockholders' deficit                                                                                                                                                            |   |                       | (425                   | )                       |   | (242 | ) |
| Total                liabilities and stockholders' deficit                                                                                                                                            |   | $                          | 2,237                  |                    | $      | 2,584 |   |

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|                                                                                                                 |   | Three months ended October 31, |       |
|----------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|------------|
|                                                                                                                 |   | 2007                                               |       | 2006 |   |
| OPERATING                REVENUES:                                                                                   |   |                                               |       |   |   |   |   |
| Carrier                services                                                                                      |   | $                                                  | 9,402      |   | $ | 6,499 |   |
| Communication                services                                                                                |   |                                               | 25         |   |   | 33 |   |
| Total                operating revenues                                                                              |   |                                               | 9,427      |   |   | 6,532 |   |
|                                                                                                                 |   |                                               |       |   |   |   |   |
| OPERATING                EXPENSES:                                                                                   |   |                                               |       |   |   |   |   |
| Cost                of services (exclusive of depreciation and amortization, shown                below)             |   |                                               | 8,785      |   |   | 6,019 |   |
| Selling,                general and administrative expense (exclusive of legal and professional                fees) |   |                                               | 823        |   |   | 571 |   |
| Legal                and professional fees                                                                           |   |                                               | 89         |   |   | 58 |   |
| Bad                debt expense                                                                                      |   |                                               | -          |   |   | 23 |   |
| Depreciation                and amortization expense                                                                 |   |                                               | 40         |   |   | 17 |   |
| Total                operating expenses                                                                              |   |                                               | 9,737      |   |   | 6,688 |   |
|                                                                                                                 |   |                                               |       |   |   |   |   |
| OPERATING                INCOME (LOSS)                                                                               |   |                                               | (310       | ) |   | (156 | ) |
|                                                                                                                 |   |                                               |       |   |   |   |   |
| OTHER                INCOME (EXPENSE):                                                                               |   |                                               |       |   |   |   |   |
| Debt                forgiveness income                                                                               |   |                                               | 41         |   |   | - |   |
| Interest                income (expense)                                                                             |   |                                               | (24        | ) |   | (28 | ) |
| Total                other income (expense), net                                                                     |   |                                               | 17         |   |   | (28 | ) |
|                                                                                                                 |   |                                               |       |   |   |   |   |
| NET                INCOME (LOSS)                                                                                     |   |                                               | (293       | ) |   | (184 | ) |
|                                                                                                                 |   |                                               |       |   |   |   |   |
| LESS:                PREFERRED DIVIDEND                                                                              |   |                                               | (12        | ) |   | (2 | ) |
| ADD:                REVERSAL OF PREVIOUSLY RECORDED PREFERRED DIVIDEND                                               |   |                                               | 340        |   |   | - |   |
|                                                                                                                 |   |                                               |            |   |   |  |   |
| NET                INCOME (LOSS) TO COMMON STOCKHOLDERS                                                              |   | $                                                  | 35         |   | $ | (186 | ) |
|                                                                                                                 |   |                                               |       |   |   |   |   |
| BASIC                INCOME (LOSS) PER SHARE:                                                                        |   | $                                                  | 0.00       |   | $ | (0.01 | ) |
| DILUTED                INCOME (LOSS) PER SHARE                                                                       |   | $                                                  | 0.00       |   | $ | (0.01 | ) |
|                                                                                                                 |   |                                               |       |   |   |   |   |
| WEIGHTED                AVERAGE COMMON SHARES OUTSTANDING                                                            |   |                                               | 38,792,388 |   |   | 17,569,410 |   |
| DILUTED                COMMON SHARES OUTSTANDING                                                                     |   |                                               | 38,796,275 |   |   | 17,569,410 |   |

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|                                                              |   | Three months ended October 31, |   |
|-------------------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                              |   | 2007                                               |   | 2006 |   |
|                                                              |   |                                               |   |   |   |
| Net                income (loss) to common stockholders           |   | $                                                  | 35     |   | $ | (186 | ) |
|                                                              |   |                                               |   |   |   |   |   |
| Foreign                currency translation adjustment            |   |                                               | -      |   |   | - |   |
|                                                              |   |                                               |   |   |   |   |   |
| Comprehensive                income (loss) to common stockholders |   | $                                                  | 35     |   | $ | (186 | ) |

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**ATSI      COMMUNICATIONS, INC. AND SUBSIDIARIES**

**CONSOLIDATED      STATEMENT OF STOCKHOLDERS DEFICIT**

**(in      thousands, except share amounts)**

|                                                                         |   |                   |    |                   |   |       |   | **Additional** |      |         |   |                 |   |        |           |
|------------------------------------------------------------------------------|--------|------------------------|---------|------------------------|--------|------------|--------|----------------|-----------|--------------|--------|----------------------|--------|-------------|----------------|
|                                                                         |   | **Preferred (D)** |    | **Preferred (E)** |   | **Common** |   | **Paid-in**    |      | **Retained** |   | **Other Comp.** |   |        |           |
|                                                                         |   | **Shares**             |    | **Par**                |   | **Shares** |   | **Par**        |      | **Shares**   |   | **Par**              |   | **Capital** |           | **(Deficit)** |   | **Income/Loss** |   | **Totals** |   |
| **BALANCE,                JULY 31, 2007**                                    |   |                   | **742** |                   |   | **1**      |   |           | **1,170** |         |   | **1**                |   |        | **37,620,513** |   |   | **38** |   | **$** | **72,222** |   | **$** | **(72,505** | **)** | **$** | **1** |   | **$** | **(242** | **)** |
| Shares                issued for Services                                    |   |                   |    |                   |   |       |   |           |      |         |   |                 |   |        | 1,360,292      |   |   | 1 |   |   | 285 |   |   |   |   |   |   |   |   | 286 |   |
| Common                shares issued for Preferred Stock Conversion           |   |                   |    |                   |   |       |   |           |      |         |   |                 |   |        | 3,434          |   |   | - |   |   | 1 |   |   |   |   |   |   |   |   | 1 |   |
| Stock                option expense                                          |   |                   |    |                   |   |       |   |           |      |         |   |                 |   |        |           |   |   |   |   |   | 168 |   |   |   |   |   |   |   |   | 168 |   |
| Shares                issued for conversion of notes payable                 |   |                   |    |                   |   |       |   |           |      |         |   |                 |   |        | 130,436        |   |   | - |   |   | 30 |   |   |   |   |   |   |   |   | 30 |   |
| Retirement                of Series D preferred stock, settlement of lawsuit |   |                   | (742    | )                      |   | (1         | )      |           |      |         |   |                 |   |        |           |   |   |   |   |   | (525 | ) |   |   |   |   |   |   |   | (525 | ) |
| Retirement                of Series E preferred stock, settlement of lawsuit |   |                   |    |                   |   |       |   |           | (1,170    | )            |   | (1                   | )      |        |           |   |   |   |   |   | (175 | ) |   |   |   |   |   |   |   | (175 | ) |
| Reversal                of previously recorded preferred dividend            |   |                   |    |                   |   |       |   |           |      |         |   |                 |   |        |           |   |   |   |   |   | 340 |   |   |   |   |   |   |   |   | 340 |   |
| Dividends                declared-current year                               |   |                   |    |                   |   |       |   |           |      |         |   |                 |   |        |           |   |   |   |   |   | (12 | ) |   |   |   |   |   |   |   | (12 | ) |
| Net                (Loss)                                                    |   |                   |    |                   |   |       |   |           |      |         |   |                 |   |        |           |   |   |   |   |   |   |   |   | (293 | ) |   |   |   |   | (293 | ) |
| **BALANCE,                OCTOBER 31, 2007**                                 |   |                   | **-**   |                   |   | **-**      |   |           | **-**     |         |   | **-**                |   |        | **39,114,675** |   |   | **39** |   | **$** | **72,333** |   | **$** | **(72,798** | **)** | **$** | **1** |   | **$** | **(425** | **)** |

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|                                                                                                  |   | Three months ended October 31, |   |
|-------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------|--------|
|                                                                                                  |   | 2007                                               |   | 2006 |   |
|                                                                                                  |   |                                               |   |   |   |   |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                  |   |                                               |   |   |   |   |   |
| NET                INCOME (LOSS)                                                                      |   | $                                                  | (293   | ) | $ | (184 | ) |
| Adjustments                to reconcile net loss to cash used in operating                activities: |   |                                               |   |   |   |   |   |
| Debt                forgiveness income                                                                |   |                                               | 41     |   |   | - |   |
| Depreciation                and amortization                                                          |   |                                               | 40     |   |   | 17 |   |
| Issuance                of stock grants and options, employees for services                           |   |                                               | 440    |   |   | 315 |   |
| Issuance                of common stock and warrants for services                                     |   |                                               | 15     |   |   | 11 |   |
| Provisions                for losses on accounts receivables                                          |   |                                               | -      |   |   | 23 |   |
| Amortization                of debt discount                                                          |   |                                               | 2      |   |   | 2 |   |
| Settlement                of litigation with RoseGlen                                                 |   |                                               | (175   | ) |   | - |   |
| Changes                in operating assets and liabilities:                                           |   |                                               |   |   |   |   |   |
| Accounts                receivable                                                                    |   |                                               | (113   | ) |   | (67 | ) |
| Prepaid                expenses and other                                                             |   |                                               | (13    | ) |   | (4 | ) |
| Accounts                payable                                                                       |   |                                               | (188   | ) |   | 31 |   |
| Accrued                liabilities                                                                    |   |                                               | (140   | ) |   | 36 |   |
| Net                cash used in / provided by operating activities                                    |   |                                               | (384   | ) |   | 180 |   |
|                                                                                                  |   |                                               |   |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                  |   |                                               |   |   |   |   |   |
| Investment                in certificates of deposit                                                  |   |                                               | (4     | ) |   | - |   |
| Note                receivable                                                                        |   |                                               | (100   | ) |   | - |   |
| Purchases                of property & equipment                                                  |   |                                               | (1     | ) |   | (12 | ) |
| Net                cash used in investing activities                                                  |   |                                               | (105   | ) |   | (12 | ) |
|                                                                                                  |   |                                               |   |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                  |   |                                               |   |   |   |   |   |
| Payments                on notes payable, related party                                               |   |                                               | -      |   |   | (90 | ) |
| Payments                on notes payable                                                              |   |                                               | (47    | ) |   | - |   |
| Proceeds                from advances from shareholders                                               |   |                                               | -      |   |   | 408 |   |
| Proceeds                from the exercise of warrants                                                 |   |                                               | -      |   |   | 35 |   |
| Principal                payments on capital lease obligation                                         |   |                                               | (1     | ) |   | (1 | ) |
| Net                cash used in / provided by financing activities                                    |   |                                               | (48    | ) |   | 352 |   |
|                                                                                                  |   |                                               |   |   |   |   |   |
| DECREASE                / INCREASE IN CASH                                                            |   |                                               | (537   | ) |   | 520 |   |
| CASH                AND CASH EQUIVALENTS, beginning of period                                         |   |                                               | 1,050  |   |   | 36 |   |
|                                                                                                  |   |                                               |   |   |   |   |   |
| CASH                AND CASH EQUIVALENTS, end of period                                               |   | $                                                  | 513    |   | $ | 556 |   |
|                                                                                                  |   |                                               |   |   |   |   |   |
| SUPPLEMENTAL                DISCLOSURES:                                                              |   |                                               |   |   |   |   |   |
| Cash                paid for interest                                                                 |   | $                                                  | 13     |   | $ | 12 |   |
| Cash                paid for income tax                                                               |   |                                               | -      |   |   | - |   |
|                                                                                                  |   |                                               |   |   |   |   |   |
| NON-CASH                INVESTING AND FINANCING TRANSACTIONS                                          |   |                                               |   |   |   |   |   |
| Issuance                of common stock for conversion of debt                                        |   | $                                                  | 30     |   | $ | 15 |   |
| Conversion                of preferred stock to common stock                                          |   |                                               | 1      |   |   | 106 |   |
| Preferred                stock dividend                                                               |   |                                               | 12     |   |   | 2 |   |
| Reversal                of previously recorded preferred stock dividend                               |   |                                               | (340   | ) |   | - |   |

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**ATSI      COMMUNICATIONS, INC. AND SUBSIDIARIES**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE      1 – BASIS OF PRESENTATION**

**NOTE      2 – GOING CONCERN**

**NOTE      3 – STOCK-BASED COMPENSATION**

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| Expected                dividend yield         |   |   | 0.00         | %      |
|------------------------------------------------|--------|--------|--------------|--------|
| Expected                stock price volatility |   |   | 75           | %      |
| Risk-free                interest rate         |   |   | 4.65         | %      |
| Expected                life of options        |   |   | 6 years |   |

|                                            |   |    |      |                          |   | Weighted-average            |   |
|-------------------------------------------------|--------|---------|-----------|-------------------------------|--------|-----------------------------|--------|
|                                            |   |    |      | Weighted-average              |   | remaining contractual  |   |
| **2005                Stock Compensation Plan** |   | Options |      | exercise                price |   | term                (years) |   |
| Outstanding                at July 31, 2007     |   |    | 5,598,998 |                          | $      | 0.17                        |   |   | 6 |   |
|                                            |   |    |      |                          |   |                        |   |   |   |   |
| Granted                                         |   |    | 1,835,000 |                          |   | 0.21                        |   |   | 6 |   |
| Forfeited                                       |   |    | (20,000   | )                             |   | 0.21                        |   |   | 6 |   |
|                                            |   |    |           |                          |   |                             |   |   |  |   |
| Outstanding                at October 31, 2007  |   |    | 7,413,998 |                          |   | 0.18                        |   |   | 6 |   |
|                                            |   |    |      |                          |   |                        |   |   |   |   |
| Exercisable                at October 31, 2007  |   |    | 4,700,333 |                          | $      | 0.18                        |   |   | 6 |   |

**NOTE      4 – DEBT**

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**NOTE      5 – COMMON STOCK**

| -   | 60,894                shares of common stock valued at $14,210 to its placement agent and                consultants for their services                rendered. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | 1,299,398                shares of common stock to its employees and directors for services                rendered. ATSI recorded the fair value of $272,873 as the compensation                expense in its statement of operations. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| -   | 3,434                shares of common stock to a Series H Preferred Stock shareholder                for the                previously unprocessed issuance. |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| -   | 130,436                shares of common stock to Alfonso Torres in lieu of $30,000 in accrued                interest associated with the Alfonso Torres note payable. |
|---------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**NOTE      6 –NOTE RECEIVABLE**

**NOTE      7 - RELATED PARTY TRANSACTIONS**

**NOTE      8 – PREFERRED STOCK SETTLEMENTS**

**NOTE      9 – SUBSEQUENT EVENTS **

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**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND PLAN OF      OPERATIONS**

*SPECIAL      NOTE: This Quarterly Report on Form 10-QSB contains “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, as amended,      and      Section 21E of the Securities 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. Some of these risks      include the availability and capacity of competitive data transmission networks,      the continued effectiveness of our concession from the government of Mexico,      and      or ability to raise sufficient capital to continue operations. Additional risks      are included in our Annual Report on Form 10-KSB filed with the Securities      and      Exchange Commission on October 17, 2007. *

**General**

* *

----

**Results      of Operations **

|                                                                                                                 |   | Three                months ended October 31, |   |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                 |   | 2007                                          |   | 2006 |   | Variances |   | % |   |
| OPERATING                REVENUES:                                                                                   |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Carrier                services                                                                                      |   | $                                             | 9,402  |   | $ | 6,499 |   | $ | 2,903 |   |   | 45 | % |
| Communication                services                                                                                |   |                                          | 25     |   |   | 33 |   |   | (8 | ) |   | -24 | % |
| Total                operating revenues                                                                              |   |                                          | 9,427  |   |   | 6,532 |   |   | 2,895 |   |   | 44 | % |
|                                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Cost                of services (exclusive of depreciation and amortization, shown                below)             |   |                                          | 8,785  |   |   | 6,019 |   |   | 2,766 |   |   | 46 | % |
| GROSS                MARGIN                                                                                          |   |                                          | 642    |   |   | 513 |   |   | 129 |   |   | 25 | % |
|                                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Selling,                general and administrative expense (exclusive of legal and professional                fees) |   |                                          | 823    |   |   | 571 |   |   | 252 |   |   | 44 | % |
| Legal                and professional fees                                                                           |   |                                          | 89     |   |   | 58 |   |   | 31 |   |   | 53 | % |
| Bad                debt expense                                                                                      |   |                                          | -      |   |   | 23 |   |   | (23 | ) |   | -100 | % |
| Depreciation                and amortization expense                                                                 |   |                                          | 40     |   |   | 17 |   |   | 23 |   |   | 135 | % |
| OPERATING                INCOME (LOSS)                                                                               |   |                                          | (310   | ) |   | (156 | ) |   | (154 | ) |   | -99 | % |
|                                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):                                                                               |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Debt                forgiveness income                                                                               |   |                                          | 41     |   |   | - |   |   | 41 |   |   | 100 | % |
| Interest                income (expense)                                                                             |   |                                          | (24    | ) |   | (28 | ) |   | 4 |   |   | 14 | % |
| Total                other income (expense), net                                                                     |   |                                          | 17     |   |   | (28 | ) |   | 45 |   |   | 161 | % |
|                                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| NET                INCOME (LOSS)                                                                                     |   |                                          | (293   | ) |   | (184 | ) |   | (109 | ) |   | -59 | % |
|                                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| LESS:                PREFERRED DIVIDEND                                                                              |   |                                          | (12    | ) |   | (2 | ) |   | (10 | ) |   | -500 | % |
|                                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| ADD:                REVERSAL OF PREVIOUSLY RECORDED PREFERRED DIVIDEND                                               |   |                                          | 340    |   |   | - |   |   | 340 |   |   | 100 | % |
|                                                                                                                 |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| NET                INCOME (LOSS) TO COMMON STOCKHOLDERS                                                              |   | $                                             | 35     |   | $ | (186 | ) | $ | 221 |   |   | 119 | % |

**Three      Months ended October 31, 2007 Compared to Three Months ended October 31,      2006**

*Operating      Revenues*

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

*Selling,      General and Administrative (SG&A) Expenses (exclusive of legal and      professional fees). *

----

*Legal      and professional fees*

*Bad      debt expense. *

*Depreciation      and amortization*

*Operating      income (loss)*

*Debt      forgiveness income*

*Interest      income (expense)*

*Net      income (loss)*

*Preferred      stock dividends*

*Reversal      of previously recorded preferred stock dividends. *

*Net      income (loss) applicable to common stockholders*
* *

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**Liquidity      and Capital Resources**

*Cash      Position:*

**Ongoing      operations**

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**ITEM      3. CONTROLS AND PROCEDURES**

**Evaluation      of Disclosure Controls and Procedures**

**Changes      in Internal Control Over Financial Reporting**

**PART      II. OTHER INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS**

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

**ITEM      3. DEFAULTS UPON SENIOR SECURITIES**

**ITEM      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

**ITEM      5. OTHER INFORMATION**

**ITEM      6. EXHIBITS **

| **Number** | **Description**                                                                                                                                                                                                                                                                                                                         |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                    |
| 10.1       | Settlement                Agreement and Release dated December 10, 2007 among ATSI Communications,                Inc., John M. O’Quinn, the O’Quinn Law Firm, John M. O’Quinn &                Associates L.L.P., James W. Christian, Christian, Smith & Jewell LLP,                and The Shaar Fund, Ltd. |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 10.2       | Promissory                Note dated December 10, 2007 in the original principal amount of                $450,000                payable to The Shaar Fund, Ltd.                                                                                                                                                                       |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 10.3       | Settlement                Agreement and Release dated October 1, 2007 between ATSI Communications,                Inc., and Alfonso Torres Roqueni.                                                                                                                                                                                     |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 10.4       | Promissory                Note dated October 1, 2007 in the original principal amount of $459,170                payable to Alfonso Torres Roqueni.                                                                                                                                                                                     |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 10.5       | Promissory                Note dated October 31, 2007 in the original principal amount of $200,000                payable to CCA Financial Services.                                                                                                                                                                                    |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 10.6       | Security                Agreement dated October 31, 2007 with CCA Financial Services.                                                                                                                                                                                                                                                   |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 31.1       | Certification                of our President and Chief Executive Officer, under Section 302 of                the                Sarbanes-Oxley Act of 2002.                                                                                                                                                                           |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 31.2       | Certification                of our Corporate Controller and Principal Financial Officer, under                Section                302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                            |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 32.1       | Certification                of our President and Chief Executive Officer, under Section 906 of                the                Sarbanes-Oxley Act of 2002.                                                                                                                                                                           |
|       |                                                                                                                                                                                                                                                                                                                                    |
| 32.2       | Certification                of our Corporate Controller and Principal Financial Officer, under                Section                906 of the Sarbanes-Oxley Act of                2002.                                                                                                                                             |

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**SIGNATURE**

|                                   | **ATSI                COMMUNICATIONS, INC.** |
|----------------------------------------|----------------------------------------------|
|                                   | (Registrant)                                 |
|                                   |                                         |   |
|                                   |                                         |   |
| Date:                December 14, 2007 | By:                                          | /s/                Arthur L. Smith |
|                                   | Name:                                        | Arthur                L. Smith |
|                                   | Title:                                       | President                and |
|                                   |                                         | Chief                Executive Officer |
|                                   |                                         |   |
| Date:                December 14, 2007 | By:                                          | /s/                Antonio Estrada |
|                                   | Name:                                        | Antonio                Estrada |
|                                   | Title:                                       | Corporate                Controller |
|                                   |                                         | (Principal                Accounting and Principal |
|                                   |                                         | Financial                Officer) |

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