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

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                                    FORM 10-Q

(MARK ONE)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the quarterly period ended April 30, 2004
                                       Or

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from ______________ to ________________

                         Commission File Number 1-15687

                            ATSI COMMUNICATIONS, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                NEVADA                                           74-2849995
       (STATE OR OTHER JURISDICTION                             IRS EMPLOYER
     OF INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)

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


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

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

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

--------------------------------------------------------------------------------
     THERE WERE 143,751,700 SHARES OF COMMON STOCK OUTSTANDING AT JUNE 14, 2004.
--------------------------------------------------------------------------------

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


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

                                      QUARTERLY REPORT ON FORM 10-Q
                                   FOR THE QUARTER ENDED APRIL 30, 2004

                                                  INDEX


<S>       <C>                                                                                        <C>
PART I.   FINANCIAL INFORMATION                                                                      Page
                                                                                                     ----

Item 1.   Financial Statements (Unaudited)
          Consolidated Balance Sheets as of July 31, 2003 and April 30, 2004 . . . . . . . . . . .    3
          Consolidated Statements of Operations for the Three and Nine Months Ended April 30, 2003
          and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    4
          Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended
          April 30, 2003 and 2004  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5
          Consolidated Statements of Cash Flows for the Nine Months Ended April 30, 2003
          and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6
          Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . .    7

Item 2.   Management's Discussion and Analysis of Financial Condition and Results of Operations  .    9

Item 3.   Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . .   19

Item 4.   Control and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   19

PART II.  OTHER INFORMATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   19

Item 1.   Legal Proceedings  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   19

Item 6.   Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20
</TABLE>


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

                                          ITEM 1. FINANCIAL STATEMENTS

                                                                                                     April 30,    July 31,
                                                                                                       2004         2003
                                                                                                   ------------  ----------
<S>                                                                                                <C>           <C>
ASSETS                                                                                              (unaudited)
------
CURRENT ASSETS:
Cash and cash equivalents                                                                          $       102   $     140
Accounts receivable                                                                                         18           7
Note receivable-current portion                                                                              -         187
Prepaid & other current assets                                                                              21           6
                                                                                                   ------------  ----------
     Total Current Assets                                                                                  141         340
                                                                                                   ------------  ----------

OTHER ASSETS, net
Note receivable                                                                                            100         100
Investment in joint venture                                                                                624         663
                                                                                                   ------------  ----------
     Total Assets                                                                                  $       865   $   1,103
                                                                                                   ============  ==========

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Pre-petition liabilities of bankrupt subsidiaries, net of assets                                   $    12,354   $  12,350
Accounts payable                                                                                           427         356
Accrued liabilities                                                                                      2,472       2,559
Notes payable                                                                                              654         445
Convertible debentures                                                                                     275         275
Series D cumulative preferred stock, 3,000 shares authorized, 742 shares issued and
outstanding.                                                                                             1,126       1,093
Series E cumulative preferred stock, 10,000 shares authorized and 1,170 shares issued and
outstanding                                                                                              1,257       1,209
Liabilities from discontinued operations, net of assets                                                  1,152       1,152
                                                                                                   ------------  ----------
     Total Current Liabilities                                                                          19,717      19,439
                                                                                                   ------------  ----------

LONG-TERM LIABILITIES:
Other                                                                                                       52           9
                                                                                                   ------------  ----------
     Total Long-term Liabilities                                                                            52           9
                                                                                                   ------------  ----------

STOCKHOLDERS' DEFICIT:
---------------------
Preferred Stock, $0.001 par value, 10,000,000 shares authorized,
Series A cumulative convertible preferred stock, 50,000 shares authorized, 3,750 and 4,370 shares
issued and outstanding, respectively                                                                         -           -
Series F cumulative convertible preferred stock, 10,000 shares authorized, 0 and 7,260 shares
issued and outstanding, respectively                                                                         -           -
Series G cumulative convertible preferred stock, 42,000 shares authorized, 0 and 6,500 shares
issued and outstanding, respectively                                                                         -           -
Common stock, $0.001, 200,000,000 shares authorized,  143,751,700 and 103,638,690
issued and outstanding, respectively                                                                       144         104
Additional paid in capital                                                                              61,201      61,124
Accumulated deficit                                                                                    (80,751)    (80,075)
Other comprehensive income                                                                                 502         502
                                                                                                   ------------  ----------
     Total Stockholders' Deficit                                                                       (18,904)    (18,345)
                                                                                                   ------------  ----------
     Total Liabilities and Stockholders' Deficit                                                   $       865   $   1,103
                                                                                                   ============  ==========
<FN>
                   The accompanying notes are an integral part of these consolidated financial statements
</TABLE>


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


                                                       Three months ended April 30,         Nine months ended April 30,
                                                    -----------------------------------  ---------------------------------
                                                          2004               2003              2004             2003
                                                    -----------------  ----------------  ----------------  ---------------
<S>                                                 <C>                <C>               <C>               <C>
OPERATING REVENUES:
  Services
      Carrier services                              $            484   $             0   $           726   $        6,532
      Network services                                            77                70               161              377
                                                    -----------------  ----------------  ----------------  ---------------

     Total Operating Revenues                                    561                70               887            6,909

OPERATING EXPENSES:
      Cost of services (exclusive of depreciation
      and amortization, shown below)                             501                86               768            6,211
      Selling, general and administrative                        216               310               644            3,652
      Bad debt expense                                             -                22                 4               35
      Depreciation and Amortization                                6               363                 6            1,212
                                                    -----------------  ----------------  ----------------  ---------------

     Total Operating Expenses                                    723               781             1,422           11,110
                                                    -----------------  ----------------  ----------------  ---------------


OPERATING LOSS                                                  (162)             (711)             (535)          (4,201)

OTHER INCOME (EXPENSE):
  Other income (expense), net                                      -                 -                 1              (19)
  Loss on an unconsolidated affiliate                            (25)                -               (85)               -
  Interest expense                                               (29)             (228)              (82)            (612)
  Gain/(loss) from sale of assets                                 25                 -                25              (28)
                                                    -----------------  ----------------  ----------------  ---------------

     Total Other Expense                                         (29)             (228)             (141)            (659)

LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAX                                    (191)             (939)             (676)          (4,860)

NET LOSS FROM DISCONTINUED
OPERATIONS                                                         -              (421)                -           (2,821)
                                                    -----------------  ----------------  ----------------  ---------------

NET LOSS                                                        (191)           (1,360)             (676)          (7,681)

LESS: PREFERRED DIVIDENDS                                        (82)              (91)             (268)            (278)
                                                    -----------------  ----------------  ----------------  ---------------

NET LOSS TO COMMON STOCKHOLDERS                                ($273)          ($1,451)            ($944)         ($7,959)
                                                    =================  ================  ================  ===============

BASIC AND DILUTED LOSS PER SHARE                              ($0.00)           ($0.01)           ($0.01)          ($0.08)
                                                    =================  ================  ================  ===============

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                                    117,466,210       103,639,000       108,180,636      101,136,180
                                                    =================  ================  ================  ===============
<FN>
                  The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


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


                                               For the three months ended April 30,       For the nine months ended April  30,
                                             -----------------------------------------  ----------------------------------------
                                                    2004                  2003                 2004                 2003
                                             -------------------  --------------------  ------------------  --------------------
<S>                                          <C>                  <C>                   <C>                 <C>
Net loss to common stockholders

   Other comprehensive loss, net of tax:                  ($273)              ($1,451)              ($944)              ($7,959)

    Foreign currency translation adjustment                   -                  (134)                  -                   669
                                             -------------------  --------------------  ------------------  --------------------

Comprehensive Loss to Common Stockholders                 ($273)              ($1,585)              ($944)              ($7,290)
                                             ===================  ====================  ==================  ====================
<FN>
                     The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


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


                                                                      Nine months ended April 30,
                                                                   ---------------------------------
                                                                         2004             2003
                                                                   ----------------  ---------------
<S>                                                                <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                   ($676)         ($7,681)
  Adjustments to reconcile net loss
   operating activities-
     Impairment loss                                                             -               88
     Depreciation and amortization                                               6            1,721
     Gain on disposition of property & equipment                                 -               33
      Loss on an unconsolidated affiliate                                       85                -
      Issuance of common stock for services                                      2                -
      Issuance of warrants for services                                         30                -
     Foreign currency loss                                                       -              656
     Provision for losses on accounts receivable                                 4              106
     Changes in operating assets and liabilities:
        (Increase)  Decrease in accounts receivable                            (11)             783
        (Increase) Decrease in prepaid expenses and other                      (21)             439
        Increase in accounts payable                                           116            3,354
        Increase in accrued liabilities                                         78            1,459
        (Decrease) in deferred revenue                                           -             (108)
                                                                   ----------------  ---------------
Net Cash Used in/Provided by Operating Activities                             (387)             850
                                                                   ----------------  ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property & equipment                                             -             (328)
   Cash proceeds from sale of ATSICOM                                          187                -
   Investment in joint Venture  in ATSICOM                                     (47)               -
                                                                   ----------------  ---------------
Net Cash Provided By/Used in Investing Activities                              140             (328)
                                                                   ----------------  ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from issuance of debt                                              215               25
   Debt payments                                                                (6)               -
   Capital lease payments                                                        -              (87)
   Payment of expenses related to the issuance of preferred stock                -              (12)
   Payment of expenses related to the issuance of common stock                   -              (95)
                                                                   ----------------  ---------------
Net Cash Provided By/Used in Financing Activities                              209             (169)
                                                                   ----------------  ---------------
NET (DECREASE) INCREASE IN CASH                                                (38)             354
CASH AND CASH EQUIVALENTS, beginning of period                                 140               27
                                                                   ----------------  ---------------
CASH AND CASH EQUIVALENTS, end of period                           $           102   $          381
                                                                   ================  ===============
<FN>
       The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>


                                        6
<PAGE>
                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

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

     1.   BASIS OF PRESENTATION

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

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

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

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


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


                                April 30, 2004   July 31, 2003
                                ---------------  --------------
<S>                             <C>              <C>
CURRENT LIABILITIES:
 Accounts payable               $         7,496  $        7,492
 Accrued liabilities                      2,015           2,015
 Notes payable                              636             636
 Capital leases                           2,207           2,207
                                ---------------  --------------
     Total current liabilities  $        12,354  $       12,350
                                ---------------  --------------
</TABLE>

     3.   NOTES PAYABLE

     We have borrowed a total of $262,500 from Recap Marketing & Consulting, LLP
and entered into a series of unsecured convertible promissory notes bearing
interest at the rate of 12% per annum, with the following maturity dates:

<TABLE>
<CAPTION>
                 Origination Date    Amount     Maturity Date
                 -----------------  --------  ------------------
<S>                                 <C>       <C>

                 October 14, 2003   $ 50,000  August 15, 2004
                 November 25, 2003    25,000  August 15, 2004
                 December 15, 2003    25,000  August 15, 2004
                 January 15, 2004     25,000  August 15, 2004
                 February 19, 2004    25,000  August 19, 2004
                 March 17, 2004       25,000  September 17, 2004
                 April 22, 2004       40,000  October 22, 2004
                 May 10, 2004         47,500  November 10, 2004

                                    $262,500
                                    ========
</TABLE>

     4.   WARRANTS

     On  October  13,  2003,  we  entered  into consulting agreements with Recap
Marketing  &  Consulting,  LLP  that  provide  for  the issuance of compensation
warrants  to  purchase a total of 3,000,000 shares of our common stock at prices
as  indicated  in  the  following  table. These warrants have a life of  (6) six
months  from  the issuance date and were recorded at their fair value of $29,656
when  granted.

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


                                        8
<PAGE>
     5.   SUBSEQUENT EVENTS

     On May 13, 2004 we filed a current report on Form 8-K announcing in Item 5,
the  results  from  our  2004  Annual Shareholders meeting which was held in San
Antonio,  Texas  on  Thursday,  May  6,  2004.  ATSI  Shareholders  approved the
reincorporation  of the Company in the state of Nevada, re-elected Murray R. Nye
and  Richard  C.  Benkendorf  as  Class  B  members  of  the  Company's Board of
Directors,  and  ratified  the selection of Malone & Bailey, PLLC as independent
public  accountants  for the fiscal year ending July 31, 2004. We also announced
the  election  of Michael G. Santry to fill a vacancy on the Board of Directors.


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

     SPECIAL  NOTE: This Quarterly Report on Form 10-Q contains "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended  and Section 21E of the Securities and Exchange Act of 1934, as amended.
"Forward  looking  statements"  are  those statements that describe management's
beliefs  and  expectations about the future.  We have identified forward-looking
statements  by using words such as "anticipate," "believe," "could," "estimate,"
"may,"  "expect,"  and  "intend."  Although  we  believe  these expectations are
reasonable,  our  operations  involve  a  number  of  risks  and  uncertainties,
including  those  described in the Additional Risk Factors section of the Annual
Report  Form  10-KA  and  other documents filed with the Securities and Exchange
Commission.  Therefore,  these  types  of  statements may prove to be incorrect.

     The  following  is a discussion of the consolidated financial condition and
results of operations of ATSI for the three and nine months ended April 30, 2003
and  2004.  It  should  be  read  in conjunction with our Consolidated Financial
Statements,  the  Notes  thereto and the other financial information included in
the  amended  annual  report  on Form 10-KA filed with the SEC on March 3, 2004.

GENERAL

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

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

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

     We  have incurred operating losses and deficiencies in operating cash flows
in  each  year  since  our  inception  in 1994 and expect our losses to continue
through  July  31,  2004.  Our  operating  losses  were


                                        9
<PAGE>
$5,780,000,  $8,259,000  and $4,850,000 for the years ending July 31, 2003, 2002
and  2001, respectively.  We had an operating loss of  $162,000, for the quarter
ended  April  30,  2004 and operating loss of $535,000 for the nine-month period
ended April 30, 2004.  Also we have a working capital deficit of $19,576,000, at
April  30, 2004.  Due to such losses, the negative cash flows generated from our
operations,  and  our substantial working capital deficit, our auditor's opinion
on  our  financial statements as of July 31, 2003 calls attention to substantial
doubts  about our ability to continue as a going concern.  This means that there
is  substantial  doubt  that we will be able to continue in business through the
end  of  our  next  fiscal  year,  July  31,  2004.

     We have experienced difficulty in paying our vendors and lenders on time in
the  past.  On  December 31, 2002 our carrier network capacity was idled and all
of  the  US  employees  were  terminated.  This  means  that we were not able to
generate  revenues  from  carrier  services during the second half of the fiscal
year  ending July 31, 2003.  During Fiscal year 2004 we were able to restart our
network  and  as of the nine-month period ended April 30, 2004 we have generated
approximately  $726,000  in  carrier services revenue.  However, there can be no
assurance,  that in the future, such revenue level will continue to be generated
from  our  customers.  During  the  quarter ended April 30, 2004 we entered into
three  short-term  promissory  notes  for  a total of $90,000.  These funds have
allowed  us  to pay those operating and corporate expenses that were not covered
by  our  current  cash  inflows  from  operations,  especially  those  expenses
associated  with  our  quarterly  review, preparation of the proxy materials and
annual  shareholders  meeting.  We  will  continue to require additional funding
until  the  cash  inflows  from  operations  are sufficient to cover the monthly
operating  expenses.  However,  there  can  be  no  assurance  that  we  will be
successful  in  securing  additional  funding  over  the  next  twelve  months.

RESULTS OF OPERATIONS

     The following table sets forth certain items included in the Company's
results of operations in dollar amounts and as a percentage of total revenues
for the three and nine-month periods ended April 30, 2004 and 2003.

<TABLE>
<CAPTION>
                                                   Three months ended April 30,           Nine months Ended April 30,
                                              -------------------------------------  -------------------------------------
                                                                             (Unaudited)
                                                                              -----------
                                                     2004                2003               2004                2003
                                              -----------------  ------------------  -----------------  ------------------
                                                 $         %         $         %        $         %         $         %
                                              --------  -------  ---------  -------  --------  -------  ---------  -------
<S>                                           <C>       <C>      <C>        <C>      <C>       <C>      <C>        <C>
Operating revenues
------------------
Services
    Carrier services                          $   484       86%  $      0        0%  $   726       82%  $  6,532       95%
    Network services                               77       14%        70      100%      161       18%       377        5%
                                              --------  -------  ---------  -------  --------  -------  ---------  -------

Total Operating Revenues                          561      100%        70      100%      887      100%     6,909      100%

Cost of services (exclusive of depreciation
and amortization, shown below)                    501       89%        86      123%      768       87%     6,211       90%
                                              --------  -------  ---------  -------  --------  -------  ---------  -------

Gross Margin                                       60       11%       (16)     -23%      119       13%       698       10%

Selling, general and administrative
expense                                           216       39%       310      443%      644       73%     3,652       53%

Bad debt expense                                    -        0%        22       31%        4        0%        35        1%

Depreciation and amortization                       6        1%       363      519%        6        1%     1,212       18%
                                              --------  -------  ---------  -------  --------  -------  ---------  -------


                                       10
<PAGE>
Operating loss                                   (162)     -29%      (711)  -1,016%     (535)     -60%    (4,201)     -61%

Other expense, net                                (29)      -5%      (228)    -326%     (141)     -16%      (659)     -10%
                                              --------  -------  ---------  -------  --------  -------  ---------  -------

Net Loss From Continuing Operations              (191)     -34%      (939)  -1,341%     (676)     -76%    (4,860)     -70%

Income From Discontinued
Operations                                          -        0%      (421)    -601%        -        0%    (2,821)     -41%

Net Loss                                         (191)     -34%    (1,360)  -1,943%     (676)     -76%    (7,681)   --111%
                                              --------  -------  ---------  -------  --------  -------  ---------  -------

Less: preferred stock dividends                   (82)     -15%       (91)    -130%     (268)     -30%      (278)      -4%
                                              --------  -------  ---------  -------  --------  -------  ---------  -------

Net Loss to Applicable to
Common Shareholders                             ($273)     -49%   ($1,451)  -2,073%    ($944)    -106%   ($7,959)    -115%
                                              ========           =========           ========           =========
</TABLE>


THREE MONTHS ENDED APRIL 30, 2004 COMPARED TO THREE MONTHS ENDED APRIL 30, 2003

     Operating  revenues. Consolidated operating revenues increased 701% between
periods  from  $70,000  for the quarter ended April 30, 2003 to $561,000 for the
quarter  ended  April  30,  2004

     Carrier  services  revenues  increased approximately $484,000, or 100% from
the  quarter  ended  April  30,  2003  to  the quarter ended April 30, 2004. The
primary  reason  for  the  increase  in  revenue  was as a result of the Company
restarting  its carrier services business during Fiscal 2004. During the quarter
ended  April 30, 2003 the Company's carrier network was idled and as a result no
revenue  was  generated  during  the  3rd  quarter  of  Fiscal  2003.

     Network  services  revenues  increased  from  the  previous  period  by
approximately $7,000, or 10% from the quarter ended April 30, 2003. The increase
in network services revenue is primarily due to the purchase and assignment of a
network  services  contract from American TeleSource International de Mexico S.A
de  C.V. (ASTIMEX). Under the assignment and purchase agreement with ATSIMEX, we
acquired  the  remaining  term  of the contract, from February 2004 through June
2004.  Under  the  assignment  of  this  contract we will generate approximately
$22,000  per  month  in  network  services revenue for the remaining term of the
contract.

     Cost  of  services.  (exclusive  of  depreciation  and  amortization)  The
consolidated  cost  of  services increased by $415,000, or 483% from the quarter
ended  April  2003  to  the  quarter  ended  April 2004. The increase in cost of
services is a direct result of the increase in carrier services revenue from the
quarter  ended  April  30,  2003  to  the  quarter  ended April 30, 2004 and the
incurrence  of  the  costs  relating  to  providing these services. As mentioned
above,  during  the quarter ended April 30, 2003 the company's network was idled
and  as  a result minimal carrier services cost was incurred during the quarter.
During Fiscal year 2004 the company restarted its carrier services business, and
as  a result we experienced a significant increase in revenue and an increase in
the  related  cost  of  services  during  the  quarter  ended  April  30,  2004.

     Selling,  general  and  administrative  (SG&A)  expenses.  SG&A  expenses
decreased approximately by $94,000, or 30% from the quarter ended April 30, 2003
to  the  quarter  ended April 30, 2004. The decrease was offset by approximately
$62,000  of professional fees recognized during the quarter ended April 30, 2004
associated  with  the quarter review, proxy printing and distribution and annual
shareholder  meeting.  The


                                       11
<PAGE>
decrease  can  mainly  be  attributed to recognition of approximately $56,000 in
professional  fees  associated with the audit, board fees and litigations during
the  quarter  ended April 30, 2003. Additionally, during the quarter ended April
30,  2003,  the  company  incurred  health,  business insurance expense and rent
expense  of  approximately  $20,000,  $4,000  and  $30,000,  respectively.

     Bad  debt  expense.  Bad debt expense decreased by 100% or $22,000 from the
quarter  ended  April  30,  2003 to the quarter ended April 30, 2004. During the
quarter  ended  April  30,  2003  we  recognized  $22,000  in  bad  debt expense
associated  with  the  write-off  of  network  services  customer receivables in
Central  America.  We  did  not  experience  any  bad debt write offs during the
quarter  ended  April  30,  2004.

     Depreciation  and amortization.  Depreciation and amortization decreased by
98% or $357,000 from the quarter ended April 30, 2003 to the quarter ended April
30,  2004.  The  decrease  is  attributed  to  the disposal of substantially all
capital equipment during Fiscal 2003. During the quarter ended April 30, 2004 we
amortized approximately $6,000 related to the purchase price associated with the
acquisition  of  the  network  services  customer  from  ATSIMEX.

     Operating  loss.  The  Company's  operating  loss  decreased  approximately
$549,000  or  77%  from  the quarter ended April 2003 to the quarter ended April
2004.  The  decrease  in  operating  loss  is attributed to the decrease between
periods  of  SG&A  by  approximately  $94,000,  decrease  in bad debt expense of
approximately  $22,000 and the decrease in depreciation and amortization expense
of  approximately $357,000.  In addition to, the gross margin profit increase by
approximately  $76,000  between  the quarters ended April 30, 2003 and April 30,
2004.

     Other  expense.  Other  expense  decreased  approximately  $199,000 between
quarters  from  $228,000 to $29,000. The decrease in other expense is attributed
to  the decrease in interest expense of approximately $174,000 recognized during
the quarter ended April 30, 2003 associated with various capital leases.  During
the  quarter  ended  April 30, 2004 the Company did not have any capital leases,
thus  we  did  not  incur  any  interest expense associated with capital leases.

     Loss  from  discontinued  operations.  Loss  from  discontinued  operations
decreased by $421,000 between periods, from $421,000 for the quarter ended April
30,  2003  to  $0  during  the quarter ended April 30, 2004.  During the quarter
ended  April  30,  2003,  we  recognized  loss  from  discontinued operations of
approximately  $421,000  associated  with  Mexico  Telco operations.  The Mexico
Telco  loss from discontinued operations during the quarter ended April 30, 2003
can  mainly  be  attributed  to  the  recognition  of  approximately $772,000 in
selling,  general  and administrative expenses and the recognition of $72,000 of
bad  debt  expense.  Additionally,  the  Mexico Telco operations also recognized
$65,000  of  depreciation and amortization and approximately $26,000 of interest
expense  and  foreign  currency  loss expense during the quarter ended April 30,
2003.  These  expenses  were offset by the recognition of approximately $558,000
of  gross  profit  margin  from  the  Mexico  Telco  Operations.

     Preferred  stock dividends.  Preferred Stock Dividends expense decreased by
approximately  $9,000  between periods, from $91,000 for the quarter ended April
30,  2003 to $82,000 during the quarter ended April 30, 2004. During the quarter
ended April 30, 2004 we converted all Redeemable preferred Series F and Series G
shares  to  common.  As a result of these conversions no dividends were incurred
during  the  month  of  April  2004  related  to  these  securities.

     Net loss to common stockholders.  The net loss for the quarter ended April
30, 2004 decreased to $273,000 from $1,451,000 for the quarter ended April 30,
2003.  The decrease in net loss to common stockholders was due primarily to the
decrease in SG&A expenses and depreciation expense of


                                       12
<PAGE>
approximately  $94,000  and  $357,000,  respectively. Additionally, as mentioned
above, losses from discontinued operations and other expenses decreased from the
quarter  ended  April  30,  2003  to  the  quarter  ended  April  30,  2004  by
approximately  $421,000  and  $199,000,  respectively.

NINE MONTHS ENDED APRIL 30, 2004 COMPARED TO NINE MONTHS ENDED APRIL 30, 2003

     Operating  revenues.  Consolidated operating revenues decreased 87% between
periods  from  $6.9 million for the nine months ended April 30, 2003 to $887,000
for  the  nine  months  ended  April  30,  2004.

     Carrier services revenues decreased approximately $5.8 million, or 89% from
the  nine  months  ended April 30, 2003 to the nine months ended April 30, 2004.
Our  carrier  traffic  declined from approximately 95 million minutes during the
nine  months  ended  April 30, 2003 to approximately 19.4 million minutes during
the  nine  months  ended  April  30,  2004.  The decrease in revenue and carrier
traffic  can  mainly  be attributed to the idling of our network during December
2002.  We  were  able  to  restart our network during fiscal 2004 and during the
nine-month  period ending April 30, 2004, we generated approximately $726,000 in
carrier  services  revenue.

     Network services revenues decreased approximately 57% or $216,000 from the
nine-month period ended April 30, 2003 to the nine-month period ended April 30,
2004.  During the nine-month period ended April 30, 2004 we provided network
services to one customer and generated approximately $11,115 in revenues from
this customer.  Additionally, in February 2004, we purchased a network services
contract from American TeleSource International de Mexico S.A de C.V. (ATSIMEX).
Under the assignment and purchase agreement with ATSIMEX, we acquired the
remaining term of a network services contract, from February 2004 through June
2004. Under the assignment of this contract we will generate approximately
$22,000 per month in network services revenue for the remaining term of the
contract.

     Cost  of  services.  (exclusive  of  depreciation  and  amortization)  The
consolidated  cost  of  services decreased by approximately $5.4 million, or 88%
from  the  nine  months  ended April 30, 2003 to the nine months ended April 30,
2004.  The  decrease  in  cost of services is a direct result of the decrease in
carrier  revenue and network services revenue.  As mentioned above, we idled our
network  in December 2002 and our carrier traffic declined from approximately 95
million  minutes  during  the  nine months ended April 30, 2003 to approximately
19.4  million minutes during the nine months ended April 30, 2004, thus reducing
our  cost  of  services  between  periods.

     Selling,  general  and  administrative  (SG&A)  expenses.  SG&A  expenses
decreased  approximately $3 million, or 82% from the nine months ended April 30,
2003  to the nine months ended April 30, 2004.  The decrease was offset slightly
by approximately $142,000 of professional fees recognized during the nine months
ended  April  30,  2004  associated  with the quarter review, proxy preparation,
printing  and  distribution  and  annual  shareholder  meeting. The decrease can
mainly  be  attributed to the termination of all US employees during the quarter
ending  January  31,  2003.  The  termination  of  these employees resulted in a
decrease  in  salaries  and  wages  of  approximately $195,000 per month or $1.8
million  during  the nine-month period.  As a result of the termination of these
employees,  during  the  nine  months  ended April 30, 2004, the company did not
incur  health  and business insurance expense of approximately $96,000 per month
or  $864,000  during  the  nine-month  period.  Additionally, as a result of the
termination  of  all  of  the  employees,  we  reduced  our  rent  expense  by
approximately  $40,000  per  month  or  $360,000  during  the nine-month period.

     Bad  debt  expense.  Bad  debt expense decreased by 89% or $31,000 from the
nine  months  ended  April


                                       13
<PAGE>
30,  2003  to the nine months ended April 30, 2004. During the nine months ended
April  30,  2003  we  recognized $35,000 in bad debt expense associated with the
write-off  of  network  services customer receivables in Central America. During
the  nine  months  ended April 30, 2004 we recognized $4,000 in bad debt expense
associated  with the write-off of network services revenue related to a customer
that  ceased  operations.

     Depreciation  and amortization.  Depreciation and amortization decreased by
99% or $1.2 million from the nine months ended April 30, 2003 to the nine months
ended  April  30,  2004.  The  decrease  is  attributed  to  the  disposal  of
substantially  all  capital  equipment  during  Fiscal  2003.

     Operating  loss.  The Company's operating loss decreased approximately $3.7
million  or  87%  from  the  nine months ended April 30, 2003 to the nine months
ended  April  30,  2004.  The  decrease  in  operating loss is attributed to the
decrease  in  SG&A by approximately $3 million, decreases in bad debt expense of
approximately  $31,000 and the decrease in depreciation and amortization expense
of  approximately  $1.2 million and was partially offset by a reduction in gross
profits  of  $579,000.

     Other  expense, net.  Other expense decreased approximately $518,000 or 79%
from  the  nine  months  ended April 30, 2003 to the nine months ended April 30,
2004.  The  decrease  in other expense is attributed to the decrease in interest
expense  of approximately $532,000 recognized during the nine months ended April
30,  2003  associated with various capital leases.  During the nine months ended
April  30,  2004  the  Company  did not have any capital leases, thus we did not
incur  any  interest  expense  associated  with  capital  leases.

     Loss  from  discontinued  operations.  Loss  from  discontinued  operations
decreased  by $2.8 million between periods; from $2.8 million for the nine-month
period  ended  April 30, 2003 to $0 during the nine-month period ended April 30,
2004.  During  the  nine-month  period  ended April 30, 2003, we recognized loss
from  discontinued  operations  of  approximately  $2.8  million associated with
Mexico  Telco  operations.  The  Mexico  Telco loss from discontinued operations
during  the  nine-months  ended  April  30, 2003 can mainly be attributed to the
recognition of approximately $3.2 million in selling, general and administrative
expenses  and  the  recognition of $660,000 of foreign currency loss on exchange
rate  related  to  the  Mexico Telco operations.  Additionally, the Mexico Telco
operations  also  recognized  $510,000  of  depreciation  and  amortization  and
approximately  $228,000  of  interest  expense and income tax expense during the
nine-month  period ended April 30, 2003.  These expenses were offset slightly by
the  recognition  of  approximately $1.9 million of gross profit margin from the
Mexico  Telco  Operations.

     Preferred  stock dividends.  Preferred Stock Dividends expense decreased by
approximately  $10,000  between periods, from $278,000 for the nine months ended
April  30,  2003 to $268,000 during the nine months ended April 30, 2004. During
the  quarter ended April 30, 2004 we converted all Redeemable preferred Series F
and  Series  G shares to common.  As a result of these conversions, no dividends
were  incurred  during the month of April 2004 related to these securities, thus
resulting  in  a  small decrease in Preferred Stock dividends expense during the
period.

     Net  loss  to  common stockholders.  The net loss for the nine months ended
April  30,  2004 decreased to $944,000 from $8 million for the nine months ended
April  30,  2003.  The  decrease  in  net  loss  to  common stockholders was due
primarily  to  the  idling  of  our  network  and  not incurring any fixed costs
associated  with the leasing of satellite sites, connectivity fees and operating
a  network  site  during  the nine months ended April 30, 2004.  During the nine
months  ended April 30, 2003, we incurred approximately $625,000 of fixed costs.
Additionally,  as  mentioned  above,  SG&A  expenses  and loss from discontinued
operations  decreased  from  the  nine  months  ended April 30, 2003 to the nine
months  ended  April  30,  2004  by  approximately  $3 million and $2.8 million,
respectively.  Also,  there  was  a  decrease  in  depreciation and amortization
expense


                                       14
<PAGE>
of  approximately  $1.2 million from the nine months ended April 30, 2003 to the
nine  months  ended  April  30,  2004.

LIQUIDITY AND CAPITAL RESOURCES

     Cash  used  in  / provided by operating activities:  During the nine months
ended  April 30, 2004, operations consumed approximately $387,000 in cash.  This
cash  consumed  by  operations  is  primarily  due  to  operating  losses  of
approximately  $676,000.  The  net  loss  was somewhat offset by the increase in
accounts  payable  of approximately $116,000, increase in accrued liabilities of
approximately $78,000 and the approximately $30,000 in proceeds from exercise of
warrants  issued for services.  The increase in accrued liabilities and accounts
payable  is  primarily  due  to the company recognizing approximately $67,000 in
interest  expense  associated with various notes and the accrual of professional
fees  and  board  fees  of  approximately  $25,000.  Additionally, we recognized
approximately  $30,000  in  the issuance of warrants for services related to the
consulting  agreements  entered into with two individuals.  Currently we are not
generating  sufficient  revenues  from operations to cover our monthly operating
salaries  and  general and administrative expense.  During the nine-month period
ending  April  30,  2004 we have relied on the monthly payments of approximately
$20,750  from  the  sale  of 51% of ATSI Comunicaciones S.A de C.V. (ATSICOM) to
Telemarketing  S.A de C.V. (Telemarketing) to pay for our monthly SG&A expenses.
Subsequent  to  the  quarter  ended  April 30, 2004 we were not able to meet our
total  minutes requirement under the Share Purchase Agreement with Telemarketing
due  to  problems  with Dialmex's network and ATSICOM's lack of interconnections
with  other  Mexican carriers.  As a result we did not receive any payments from
Telemarketing during the month of May 2004. Currently we are in discussions with
Telemarketing  to  amend  the  payment  agreement  for the balance owed to us of
approximately  $498,000.  At  this  time  we incur approximately $72,000 in SG&A
expenses  per  month,  including  corporate expenses associated with the quarter
reviews, proxy preparation and distribution and the annual shareholders meeting.
We  expect  this  financial instability and lack of liquidity to continue during
the  fiscal  year  2004.  As  a  result  over the next twelve months we estimate
requiring  additional  funding  of  approximately $745,000 to compensate for the
deficiencies  in  cash  inflows.

     Cash  provided  by  /  used in investing activities: During the nine months
ended  April  30,  2004, the Company received approximately $187,000 in payments
from  the sale of 51% of ATSICOM.  Additionally, during the nine months ended we
invested  approximately  $47,000 in ATSICOM.  ATSICOM utilized these proceeds to
pay  off  payroll taxes and professional fees previously agreed upon the sale of
ATSICOM  to  Telemarketing.

     Cash  provided  by  / used in financing activities:  During the nine months
ended April 30, 2004 we received approximately $215,000 for the issuance of debt
and  warrant  options.  Additionally,  during the nine-month period we made debt
payments  of  approximately  $6,000  to  one  of  our  creditors.

     Overall,  the  Company's  net operating, investing and financing activities
during the nine months ended April 30, 2004 provided a decrease of approximately
$38,000  in  cash  balances.  We  intend to cover our monthly operating expenses
with our remaining available cash.  However, as discussed previously we are also
dependent on the monthly cash payments from the sale of ATSICOM to cover monthly
operating  expenses.

     The  Company's  working capital deficit at April 30, 2004 was approximately
$19,576,000.  This  represents  an  increase  of approximately $477,000 from our
working  capital deficit at July 31, 2003.  The increase is primarily attributed
to  our  deficiency of cash and the accrual of various professional services and
interest  expense.  The  Company's  working  capital  deficit  at April 30, 2004
included  approximately


                                       15
<PAGE>
$12,354,000  related to the pre-petition liabilities (net of assets), associated
with  the  Chapter  7  Bankruptcy  cases, ATSI Texas and TeleSpan.  The adjusted
Company's  working  capital  deficit  after  exclusion  of  the  pre-petition
liabilities  is  approximately  $7,222,000.

     The  Company's  current  liabilities  include  approximately  $12,354,000
associated  with  the  pre-petition  liabilities related to the two subsidiaries
under Chapter 7 Bankruptcy, ATSI Texas and TeleSpan.  The pre-petition liability
balance  is  composed  of  the  following  major  liabilities:

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

     The  Company's  current  obligations  also include approximately $1,387,000
owed  to the former owners of Grupo Intelcom, S.A. de C.V., the entity purchased
by  the  Company in July 2000 and through which the Company obtained its Mexican
long distance concession.  Of this amount, $357,000 is included in notes payable
and  the  additional  $1,030,000  is  included  in  accrued  liabilities.

     The  Company's  current liabilities also include approximately $1.1 million
associated  with the Series D Cumulative preferred stock.  During the year ended
July  31,  2003,  we  received  a  redemption  letter  from  the Series D holder
requesting the redemption of all the outstanding Series D preferred stock.  As a
result  the  full  redemption  amount of approximately $942,000 and dividends of
approximately  $184,000  were  reclassified  to  current  liabilities.

     The  Company's  current  liability  includes  approximately  $1.3  million
associated with the Series E Cumulative preferred stock.  During the fiscal year
ended  July  31,  2003, the Company was de-listed from AMEX and according to the
terms  of the Series E Cumulative preferred stock Certificate of Designation, if
the  Company  fails  to  maintain a listing on NASDAQ, NYSE or AMEX the Series E
preferred  stockholder  could  request  a  mandatory  redemption  of  the  total
outstanding preferred stock.  As of the date of this filing we have not received
such  redemption  notice.

     On  October  31,  2002 we filed a lawsuit in the Southern District Court of
New  York  against two financial institutions, Rose Glen Capital and Shaar Fund,
the holders of Series D and E Redeemable Preferred Stock, for what we believe to
be  "Stock  fraud  and manipulation".  These liabilities combined for a total of
approximately  $2.4  million.  Accounting  rules  dictate that these liabilities
remain  in  our books under Current Liabilities until the lawsuit is resolved in
the judicial system or otherwise.  At this time we cannot predict the outcome or
the  time  frame  for  this  to  occur.

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


                                       16
<PAGE>
2003.

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

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

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

As  of  the  date  of  this  filing  we have been experiencing difficulties with
DialMex's  network  and  ATSICOM  has  not  been  able  to  complete  their
interconnection with other Mexican carriers, such as Telmex, required to process
domestic  and  international  VoIP traffic. As previously mentioned, we have not
been  able  to  generate  the  monthly  minutes required under the Telemarketing
agreement.  Consequently,  we  did  not  receive any payments from Telemarketing
during the month of May 2004. Currently we are in discussions with Telemarketing
to  amend  the  payment  agreement  for  the balance owed to us of approximately
$498,000.  However,  there  can  be  no  assurance  that will be able to reach a
favorable  agreement  with  Telemarketing  in  the  near  future.

Additionally,  in  June  2004,  we  acquired  a  VoIP  soft-switch  from NexTone
Communications,  Inc.  The acquisition of the NexTone soft-switch will allows us
to  diversify  our traffic and interconnect directly to foreign and US carriers,
thus  eliminating  our  dependency  on  DialMex.  We  have  interconnected  our
soft-switch  to DialMex's network and will continue to utilize DialMex on routes
to Mexico that meet our standards for cost and quality. The NexTone soft-switch,
which  is  capable  of  processing  approximately  30 million minutes per month,
includes  a  network analysis and reporting system that provides a comprehensive
set  of  management tools to engineer and translate VoIP traffic routing tables.
We  will  be  able  to  maximize our capacity by partitioning our soft-switch to
customers  that  lack  their  own  network  and  billing  capabilities.

There  can  be  no  assurance  that the acquisition and operation of the NexTone
soft-switch  will  generate sufficient cash from operations to cover our monthly
operating  expenses  over  the  next  twelve  months.  Additionally, there is no
assurance  that  we  will be able to raise the additional capital from equity of
debt  sources  required  to  continue  in  operations.

MEXICAN FACILITIES-BASED LICENSE RISKS


                                       17
<PAGE>
     We  are  substantially dependent upon the operations of ATSICOM, the holder
of  the  30-year  concession license (the "Concession") to install and operate a
public  telecommunication  network in Mexico, for the installation and operation
of  a  telecommunications  network  in  Mexico.  The  Mexican government has (1)
authority to temporarily seize all assets related to the Concession in the event
of natural disaster, war, significant public disturbance and threats to internal
peace  and  for  other reasons of economic or public order and (2) the statutory
right  to  expropriate  the  Concession  and claim all related assets for public
interest  reasons.  Although Mexican law provides for compensation in connection
with losses and damages related to temporary seizure or expropriation, we cannot
assure  you  that  the  compensation  will  be  adequate  or  timely.

     Under the Concession, ATSICOM must meet the following requirements:

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

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

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

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

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

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

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

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

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

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

     On May 23, 2003, the Company sold 51% of ATSICOM to Telemarketing.  We
cannot assure you that we and our partner, Telemarketing, will be able to obtain
financing to finish the Mexican network; if we or our partners obtain financing
it will be in a timely manner or on favorable terms; or if


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<PAGE>
we or our partners will be able to comply with the Mexican concession's
conditions.  If our partners or we fail to comply with the terms of the
concession, the Mexican government may terminate it without compensation to our
partners or us.  A termination would prevent us from engaging in our proposed
business.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

ITEM 4.  CONTROLS AND PROCEDURES

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

                           PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

     On  January  7, 2004, we filed a petition in the 150th Judicial District of
Bexar  County, Texas against Inter-tel.net, Inc. and Vianet Communications, Inc.
D/B/A Inter-tel.net seeking declaratory relief that ATSI Communications, Inc. is
not  bound by the Carrier Services Agreement between Vianet Communications, Inc.
and  ATSI  Texas.  On  February  27,  2004  the  Bankruptcy Court allowed Vianet
Communications,  Inc.  to amend its claim against ATSI Texas that was pending in
the  Bankruptcy  of  ATSI  Texas  and  assert  its  claims


                                       19
<PAGE>
for  breach  of contract against the Company.  The Bankruptcy Court then ordered
the  lawsuit  to  be remanded back to state court for hearing.  Additionally, on
February  27,  2004  Vianet  Communications,  Inc. filed a motion to abate and a
hearing  was  held  on  March  30,  2004.  On April 13, 2004 Judge Martha Tanner
overruled  and denied such motion. The Company is vigorously defending any claim
for  liability  in this matter and pursuing its claim for declaratory relief and
believes  that  any  liability  in  this matter will not have a material adverse
effect  on  its  financial  condition  or  results  of  operations.

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

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
<S>      <C>

10.1     Management Service Agreement ATSI Communication and GoodCom Management, Ltd  (Exhibit
         10.1 to Quarterly Report on Form 10-Q for the quarter ended April 30, 2004 filed June 14, 2004)

10.2     Stock Purchase Agreement with GoodCom Management, Ltd. (Sale of Sistema de Telefonia
         Computarizada) (English Translation) (Exhibit 10.2 to Quarterly Report on Form 10-Q for the
         quarter ended April 30, 2004 filed June 14, 2004)

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. *
<FN>

*  Filed  herewith
</TABLE>

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


     None


                                       20
<PAGE>
                                    SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

                            ATSI COMMUNICATIONS, INC.
                                  (Registrant)


Date:  June 14, 2004                    By:      /s/Arthur L. Smith
       -------------                             ------------------
                                        Name:    Arthur L. Smith
                                        Title:   President and
                                                 Chief Executive Officer



Date:  June 14, 2004                    By:      /s/Antonio Estrada
       -------------                             ------------------
                                        Name:    Antonio  Estrada
                                        Title:   Corporate Controller
                                          (Principal Accounting and Financial
                                                      Officer)


                                       21
<PAGE>