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

                                   FORM 10-QSB
(mark one)

[X]  QUARTERLY  REPORT  UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2004

[ ]  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 Small Business Issuer as Specified in its Charter)

                NEVADA                                   74-2849995
   (State or Other Jurisdiction of             (IRS Employer Identification No.)
    Incorporation or Organization)

                            8600 WURZBACH, SUITE 700W
                            SAN ANTONIO, TEXAS 78240
                    (Address of Principal Executive Offices)

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

     Check  whether  the  issuer  (1)  filed all reports required to be filed by
Section  13  or 15(d) of the Exchange Act during the past 12 months (or for such
shorter  period  that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

     As of December 08, 2004, there were outstanding 6,180,787 shares of the
registrant's common stock, $.001 par value per share.

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


                                        2
<PAGE>
                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

                         QUARTERLY REPORT ON FORM 10-QSB
                     FOR THE QUARTER ENDED OCTOBER 31, 2004

                                      INDEX

PART I. FINANCIAL INFORMATION                                               Page
                                                                            ----

Item 1. Financial Statements (Unaudited)

        Consolidated  Balance  Sheets  as  of  October  31,  2004 . . . . . .  4
        Consolidated Statements of Operations for the Three Months
        Ended October 31, 2004 and 2003 . . . . . . . . . . . . . . . . . . .  5
        Consolidated Statements of Comprehensive Loss for the
        Three Months Ended October 31, 2004 and 2003. . . . . . . . . . . . .  6
        Consolidated Statements of Cash Flows for the Three Months
        Ended October 31,2004 and 2003. . . . . . . . . . . . . . . . . . . .  7
        Notes to Consolidated Financial Statements. . . . . . . . . . . . . .  8

Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 10

Item 3. Control and procedures. . . . . . . . . . . . . . . . . . . . . . . . 16

PART II. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 16

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

Item 2. Unregistered sales of equity securities and use of proceeds . . . . . 17

Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . 18


                                        3
<PAGE>
<TABLE>
<CAPTION>
                                        PART 1. FINANCIAL INFORMATION

                                         ITEM 1. FINANCIAL STATEMENTS

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


                                                                                            October 31,
                                                                                               2004
                                                                                           -------------
<S>                                                                                        <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents                                                                  $         14
Accounts receivable                                                                                 160
Prepaid & other current assets                                                                       46
                                                                                           -------------
   Total current assets                                                                             220
                                                                                           -------------

PROPERTY AND EQUIPMENT                                                                              150
 Less - Accumulated depreciation and amortization                                                   (25)
                                                                                           -------------
   Net property and equipment                                                                       125
                                                                                           -------------

OTHER ASSETS, net
Intangible Assets, net                                                                               24

                                                                                           -------------
     Total assets                                                                          $        369
                                                                                           =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Pre-petition liabilities of bankrupt subsidiaries, net of assets                           $     12,104
Accounts payable                                                                                    595
Accrued liabilities                                                                                 659
Current portion of obligation under capital leases                                                    3
Notes payable                                                                                       707
Convertible debentures                                                                              275
Series D Cumulative Preferred Stock, 3,000 shares authorized, 742 shares issued and
outstanding.                                                                                      1,149
Series E Cumulative Preferred Stock, 10,000 shares authorized and 1,170 shares issued and
outstanding                                                                                       1,292
Liabilities from discontinued operations, net of assets                                           1,152
                                                                                           -------------
     Total current liabilities                                                                   17,936
                                                                                           -------------

LONG-TERM LIABILITIES:
Notes payable                                                                                       500
Obligation under capital leasses, less current portion                                               11
Other                                                                                                 9
                                                                                           -------------
     Total long-term liabilities                                                                    520
                                                                                           -------------

STOCKHOLDERS' DEFICIT:
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
Series A Cumulative Convertible Preferred Stock, 50,000 shares authorized, 3,750  issued
and outstanding                                                                                       -
Series H Convertible Preferred Stock, 16,000,000 shares authorized, 14,114,716  issued
and outstanding                                                                                      14
Common stock, $0.001, 150,000,000 shares authorized,  5,478,340  issued and outstanding               6
Additional paid in capital                                                                       69,948
Accumulated deficit                                                                             (88,557)
Other comprehensive Income                                                                          502
                                                                                           -------------
     Total stockholders' deficit                                                                (18,087)
                                                                                           -------------
     Total liabilities and stockholders' deficit                                           $        369
                                                                                           =============
</TABLE>


                                        4
<PAGE>
<TABLE>
<CAPTION>
                             ATSI COMMUNICATIONS, INC.
                                 AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share amounts)
                                    (unaudited)

                                                    Three months ended October 31,
                                                    ------------------------------
                                                         2004            2003
                                                    --------------  --------------
<S>                                                 <C>             <C>
OPERATING REVENUES:
  Services
      Carrier services                              $         769   $          33
      Network services                                         73              42
                                                    --------------  --------------

     Total operating revenues                                 842              75

OPERATING EXPENSES:
      Cost of services (exclusive of depreciation
      and amortization, shown below)                          772              50
      Selling, general and administrative                     250             196
      Legal and professional fees                             239               -
      Bad debt expense                                          -               4
      Depreciation and amortization                            23               -
                                                    --------------  --------------

     Total operating expenses                               1,284             250
                                                    --------------  --------------


OPERATING LOSS                                               (442)           (175)

OTHER INCOME (EXPENSE):
  Other income (expense), net                                   -               1
  Debt forgiveness income                                     460               -
  Loss on an unconsolidated affiliate                           -              (7)
  Interest expense                                            (31)            (26)
  Gain/(loss) from sale of assets                               -               -
                                                    --------------  --------------

     Total other income (expense)                             429             (32)

NET INCOME / (LOSS)                                           (13)           (207)

LESS: PREFERRED DIVIDENDS                                     (38)            (94)
                                                    --------------  --------------

NET INCOME / (LOSS) TO COMMON STOCKHOLDERS                   ($51)          ($301)
                                                    ==============  ==============

BASIC AND DILUTED GAIN / (LOSS) PER SHARE                  ($0.01)         ($0.29)
                                                    ==============  ==============

WEIGHTED AVERAGE COMMON
   SHARES OUTSTANDING                                   3,598,383       1,036,390
                                                    ==============  ==============
</TABLE>


                                        5
<PAGE>
<TABLE>
<CAPTION>
                          ATSI COMMUNICATIONS, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
                                        (In thousands)
                                         (unaudited)


                                                     For the three months ended October 31,
                                                   ------------------------------------------
                                                          2004                   2003
                                                   -------------------  ---------------------
<S>                                                <C>                  <C>
Net loss to common stockholders

   Other comprehensive income (loss), net of tax:                ($51)                 ($301)

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

Comprehensive loss to common stockholders                        ($51)                 ($301)
                                                   ===================  =====================
</TABLE>


                                        6
<PAGE>
<TABLE>
<CAPTION>
                           ATSI COMMUNICATIONS, INC. AND SUBSIDIARIES
                              CONSOLIDATED STATEMENT OF CASH FLOWS
                                         (In thousands)
                                           (unaudited)


                                                                  Three months ended October 31,
                                                                  ------------------------------
                                                                       2004            2003
                                                                  --------------  --------------
<S>                                                               <C>             <C>
NET INCOME (LOSS)                                                          ($13)          ($207)
Adjustments to net income (loss)
  Debt forgiveness income                                                  (460)              -
CASH FLOWS FROM OPERATING ACTIVITIES:
  Adjustments to reconcile net loss
   operating activities-
     Depreciation and amortization                                           23               -
      Loss on an unconsolidated affiliate                                     -               7
      Issuance of common stock for services                                  40               -
      Issuance of warrants for services                                       -              14
     Provision for losses on accounts receivable                              -               4
     Changes in operating assets and liabilities:
     (Increase) decrease in
        Accounts receivable                                                (131)              5
        Prepaid expenses and other                                          (20)             (6)
     Increase (decrease) in
        Accounts payable                                                     90              58
        Accrued liabilities                                                 105              29
                                                                  --------------  --------------
Net cash used in operating activities                                      (366)            (96)
                                                                  --------------  --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property & equipment                                         (6)              -
   Cash proceeds from sale of ATSICOM                                         -              62
   Investment in joint venture  in ATSICOM                                    -             (36)
   Acquisition of business, net of assets                                    (8)              -
                                                                  --------------  --------------
Net cash (used in) provided by investing activities                         (14)             26
                                                                  --------------  --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes payable                                              286              50
   Proceeds from the exercise of warrants                                    14               -
                                                                  --------------  --------------
Net cash provided by financing activities                                   300              50
                                                                  --------------  --------------
NET (DECREASE) INCREASE IN CASH                                             (80)            (20)
CASH AND CASH EQUIVALENTS, beginning of period                               94             140
CASH AND CASH EQUIVALENTS, Allocated to discontinued operations               -               -
                                                                  --------------  --------------
CASH AND CASH EQUIVALENTS, end of period                          $          14   $         120
                                                                  ==============  ==============

NON-CASH TRANSACTIONS
  Issuance of common stock for conversion of debts                $         733
  Issuance of common stock for purchase of Intangible assets                 24
</TABLE>


                                        7
<PAGE>
                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

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

NOTE 1 - BASIS OF PRESENTATION

The  accompanying unaudited interim financial statements of ATSI Communications,
Inc.  have  been  prepared  in  accordance  with accounting principles generally
accepted  in  the  United  States of America and the rules of the Securities and
Exchange  Commission ("SEC"), and should be read in conjunction with the audited
financial  statements  and  notes thereto of ATSI Communications Inc. filed with
the  SEC  on  Form  10-K  for  the  year ended July 31, 2004.  In the opinion of
management,  these  interim  financial  statements  contain  all  adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
financial  position  and  the  results  of  operations  for  the interim periods
presented.  The  results  of  operations for interim periods are not necessarily
indicative  of  the  results  to  be  expected  for the full year.  Notes to the
financial  statements,  which  would  substantially  duplicate  the  disclosure
contained  in  the  audited financial statements for the most recent fiscal year
ended  July  31,  2004,  as  reported  in  the  Form  10-K,  have  been omitted.

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

ATSI's  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  ATSI's primary operating companies and they have ceased operations.  These
bankruptcies  did  not  include ATSI Communications, Inc., the reporting entity.
On July 2, 2003, the U.S. Bankruptcy Court handling the Chapter 7 cases for ATSI
Texas  and  TeleSpan  approved  the  sale  of two of their subsidiaries, ATSI de
Mexico  S.A  de  C.V. (ATSI Mexico) and Servicios de Infraestructura S.A de C.V.
(SINFRA),  to Latingroup Ventures, L.L.C. (LGV), a non-related party.  Under the
purchase  agreement  LGV  acquired all the communication 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 represents 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.
ATSI  has  not  received  any  creditor  objections  to these court proceedings.

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

          CURRENT  LIABILITIES:                 October 31, 2004
          ---------------------                -----------------
          Accounts payable                     $           7,496
          Accrued liabilities                              2,015
          Notes payable                                      386
          Capital leases                                   2,207
                                               -----------------

          TOTAL CURRENT LIABILITIES:           $          12,104
                                               =================


                                        8
<PAGE>
NOTE 3 - NOTES PAYABLE

During  the first quarter of fiscal 2005, ATSI borrowed a total of $300,000 from
Recap  Marketing  &  Consulting,  LLP  and  entered  into  a series of unsecured
convertible promissory notes bearing interest at the rate of 12% per annum, with
the  following  maturity  dates:

          ORIGINATION DATE     AMOUNT     MATURITY DATE
          ------------------  --------  ------------------
          August 23, 2004     $ 25,000  August 23, 2005
          August 30, 2004       25,000  August 30, 2005
          September 15, 2004    25,000  September 15, 2005
          September 20, 2004   150,000  September 20, 2005
          October 8, 2004       25,000  October 8, 2005
          October 12, 2004      25,000  October 12, 2005
          October 15, 2004      10,000  October 15, 2005
          October 25, 2004      15,000  October 25, 2005
                              --------

                              $300,000
                              ========

Additionally,  during the first quarter of fiscal 2005, individual affiliates of
Recap  Marketing  &  Consulting  LLP  elected to exercise 1,348,000 warrants and
Recap  Marketing  & Consulting LLP forgave notes in the amount of $13,473 as the
conversion  price.  As  a  result  ATSI  issued  1,348,000  common  shares.

NOTE 4 - WARRANTS

On  October  13, 2003, ATSI entered into consulting agreements for twelve months
with  certain  individual  affiliates  of Recap Marketing & Consulting, LLP that
provided  for  the  issuance  of  compensation  warrants  to purchase a total of
3,900,000  shares of ATSI's common stock at prices as indicated in the following
table.  These warrants expire on November 30, 2005.  At issuance ATSI recognized
$7,052,999  of  non-cash  compensation  expense  associated with the issuance of
these  warrants.

                    COMMON SHARES  EXERCISE PRICE
                    -------------  ---------------
                        2,000,000  $    0.01/share
                          800,000  $    0.25/share
                          850,000  $    0.50/share
                          250,000  $    0.75/share

During  fist  quarter of fiscal 2005, individual affiliates of Recap Marketing &
Consulting,  LLP  or  their  assignees  exercised  the  following  warrants:

          EXERCISE DATE       EXERCISE PRICE   COMMON SHARES
          ------------------  ---------------  -------------
          September 21, 2004  $    0.01/share        762,000
          October 14, 2004    $    0.01/share        436,000
          October 15, 2004    $    0.01/share        150,000
                                               -------------

                                                   1,348,000
                                               =============

NOTE 5 - SETTLEMENT AND RESTRUCTURING OF DEBT

On  October 1, 2004, ATSI entered into a Settlement Agreement and Mutual release
with  Alfonso  Torres  Roqueni,  the  former  owner  of  the  concession license
purchased  by  ATSICOM  in  July  2000.  Under  the  settlement


                                        9
<PAGE>
agreement  all  amounts  owed  of  $1,359,500  were  restructured and settled in
exchange  for  the  issuance by ATSI of 687,600 common shares for the payment of
$859,500  of the related obligation. The common shares were considered issued at
$1.25  per  share.  However,  if  on  the measurement date of April 1, 2005, the
average  closing  price  of  the ATSI common stock for the ten (10) trading days
immediately preceding the measurement date is below $1.15, ATSI will be required
to  issue  an  additional 59,791 common shares. If, however, the average closing
price  of  the  ATSI  common  stock  for  the  ten (10) trading days immediately
preceding the measurement date is at or above $1.15, no other consideration will
be  given  and  the  687,600  shares  issued  will  be  considered  as the final
consideration.  Additionally as part of the settlement, ATSI issued a promissory
note  for  the  remaining  balance of $500,000. The note accrues interest at the
rate of 6% per annum and has a maturity date of October 1, 2007, with no monthly
payments.

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

NOTE 6 - ACQUISITION OF A LOCAL EXCHANGE CARRIER COMPANY

On  August  1, 2004, ATSI entered into an Asset Purchase Agreement with Hinotel,
Inc.,  a  Hispanic  owned  Competitive  Local Exchange Carrier ("CLEC") based in
South  Texas.  The  assets  purchased  under  the  agreement  included Hinotel's
customer base, a customer management and billing system, and supplier contracts.
Additionally,  the  transaction included the assignment and transfer of the CLEC
license  in  the  State of Texas.  The purchase price of the assets was $31,500,
paid  in  40,000  shares  of  ATSI  common  stock  and  $7,500  in  cash.

NOTE 7 - SUBSEQUENT EVENTS

NOTES PAYABLE
-------------

Subsequent  to  October  31,  2004,  ATSI borrowed a total of $50,000 from Recap
Marketing  &  Consulting, LLP and entered into a series of unsecured convertible
promissory  notes  bearing  interest  at  the  rate  of  12% per annum, with the
following  maturity  dates:

          ORIGINATION DATE   AMOUNT     MATURITY DATE
          -----------------  -------  -----------------
          November 5, 2004   $25,000  November 5, 2005
          November 15, 2004   15,000  November 15, 2005
          December 1, 2004    10,000  December 1, 2005
                             -------

                             $50,000
                             =======

Additionally,  subsequent  to  October  31, 2004, individual affiliates of Recap
Marketing  & Consulting, LLP or their assignees exercise the following warrants:

          EXERCISE DATE      EXERCISE PRICE   COMMON SHARES
          -----------------  ---------------  -------------
          November 2, 2004   $    0.01/share         50,000
          November 11, 2004  $    0.01/share         36,100
          November 11, 2004  $    0.25/share        495,072
                                              -------------

                                                    581,172
                                              =============


                                       10
<PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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 and Exchange Act of 1934, as amended.
"Forward  looking  statements"  are  those statements that describe management's
beliefs  and  expectations about the future.  We have identified forward-looking
statements  by using words such as "anticipate," "believe," "could," "estimate,"
"may,"  "expect,"  and  "intend."  Although  we  believe  these expectations are
reasonable,  our  operations  involve  a  number  of  risks  and  uncertainties,
including  those  described in the Additional Risk Factors section of the Annual
Report  Form  10-K  and  other  documents filed with the Securities and Exchange
Commission.  Therefore,  these  types  of  statements may prove to be incorrect.

     The  following  is a discussion of the consolidated financial condition and
results  of  operations  of ATSI for the three months ended October 31, 2004 and
2003.  It  should  be  read  in  conjunction  with  our  Consolidated  Financial
Statements,  the  Notes  thereto and the other financial information included in
the  annual report on Form 10-K filed with the SEC on November 8, 2004.  As used
in  this section, the term "fiscal 2005" means the year ending July 31, 2005 and
"fiscal  2004"  means  the  year  ended  July  31,  2004.

GENERAL

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

     On  August  1, 2004, we acquired a Local Exchange Carrier ("CLEC") based in
South  Texas.  This  acquisition  will  serve  as  a gateway to reach out to the
Hispanic  communities  residing along the US and Mexico border.  Our strategy is
to  provide  reliable  and  affordable  local  and long distance services to the
underserved  Hispanic community through Texas.  Our entry to the retail services
arena  will  allow  us  to leverage our existing international VoIP network with
additional  services  that have the potential to deliver higher margins than our
wholesale  international  VoIP  services.  We have deployed various postpaid and
prepaid  retail  services and generated approximately $19,000 in retail services
revenue  during  the  first  quarter  of  fiscal  2005.

     We  have incurred operating losses and deficiencies in operating cash flows
in  each  year  since  our  inception  in 1994 and expect our losses to continue
through  July  31,  2005.  Our  operating  losses  were $8,485,000, for the year
ending  July  31,  2004.  We  had an operating loss of $442,000, for the quarter
ended  October  31, 2004 and a working capital deficit of $17,716,000 at October
31,  2004.  Due to such losses and our recurring losses, as well as the negative
cash  flows  generated  from  our operations and our substantial working capital
deficit,  the  auditor's opinion on our financial statements as of July 31, 2004
calls  attention  to substantial doubts about our ability to continue as a going
concern.  This  means  that  there  is substantial doubt that we will be able to
continue  in  business  through  July  31,  2005.

     We have experienced difficulty in paying our vendors and lenders on time in
the  past.  As  a  result,  during the quarter ended October 31, 2004 management
continued  to  pursue  different avenues for funding and we entered into various
short-term  convertible  promissory  notes  in the aggregate amount of $300,000.
These  funds  have  allowed  the  Company  to  pay those operating and corporate
expenses  that were not covered by our current cash inflows from operations.  We
will  continue  to  require  additional  funding  until  the  cash  inflows from
operations  are sufficient to cover the monthly operating expenses.  There is no
assurance  that  we will be successful in securing additionally funding over the
next  twelve  months.


                                       11
<PAGE>
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-month  periods  ended  October  31,  2004  and  2003.

<TABLE>
<CAPTION>
                                               Three months ended October 31,
                                              --------------------------------
                                                    2004             2003
                                                    ----             ----
                                                         (Unaudited)
                                                         -----------
                                                 $       %        $       %
                                              -------  ------  -------  ------
<S>                                           <C>      <C>     <C>      <C>
Operating revenues
------------------
Services
    Carrier services                          $  769      91%  $   33      44%
    Network services                              73       9%      42      56%
                                              -------  ------  -------  ------
Total operating revenues                         842     100%      75     100%

Cost of services (Exclusive of depreciation
and amortization, shown below)                   772      92%      50      67%
                                              -------  ------  -------  ------
Gross Margin                                      70       8%      25      33%

Selling, general and administrative
expense                                          250      30%     196     261%

Legal and professional fees                      239      28%       -       0%

Bad debt expense                                   -       0%       4       5%

Depreciation and amortization                     23       3%       -       0%
                                              -------  ------  -------  ------
Operating loss                                  (442)    -52%    (175)   -233%

Debt forgiveness income                          460      55%       -       0%
Other income (expense), net                      (31)     -4%     (32)    -43%
                                              -------  ------  -------  ------
Net loss                                         (13)     -2%    (207)   -276%
                                              -------  ------  -------  ------
Less: preferred stock dividends                  (38)     -5%     (94)   -125%
                                              -------  ------  -------  ------
Net loss to applicable to
common shareholders                             ($51)     -6%   ($301)   -401%
                                              =======          =======
</TABLE>


                                       12
<PAGE>
THREE MONTHS ENDED OCTOBER 31, 2003 COMPARED TO THREE MONTHS ENDED OCTOBER 31,
2002

     Operating  Revenues.  Consolidated  operating  revenues  increased  1,023%
between  periods  from  $75,000  for  the  quarter  ended  October  31,  2003 to
approximately  $842,000  for  the  quarter  ended  October  31,  2004.

     Carrier  services  revenues  increased approximately $736,000, or 100% from
the  quarter  ended October 31, 2003 to the quarter ended October 31, 2004.  Our
carrier  traffic  increased  from  approximately  680,480  minutes  in the first
quarter  of fiscal 2004 to approximately 16,304,526 minutes in the first quarter
ended  October 31, 2004.  The increase in revenue and carrier traffic can mainly
be  attributed to the growth in carrier services revenue since implementation of
the  NexTone  VoIP  soft-switch  during  the  last  quarter  of  fiscal  2004.

     Network  services  revenues increased approximately 74% or $31,000 from the
quarter  ended  October  31,  2003  to  the quarter ended October 31, 2004.  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 and generated monthly revenues of approximately $22,000.  The
agreement  has  expired  and  we  are  providing  service  to this customer on a
month-to-month  basis  at  the  same  rate.

     Cost  of  Services.  (Exclusive  of  depreciation  and  amortization)  The
consolidated  cost  of  services  increased  by  approximately $722,000 from the
quarter  ended  October  31,  2003  to  the quarter ended October 31, 2004.  The
increase  in  cost  of  services  is  a direct result of the increase in carrier
services  revenue and network services revenue.  As mentioned above, our carrier
traffic  increased  from  approximately  680,480 minutes in the first quarter of
fiscal 2004 to approximately 16,304,526 minutes in the quarter ended October 31,
2004,  thus  increasing  our  cost  of  services  between  quarters.

     Selling,  General  and  Administrative  (SG&A)  Expenses.  SG&A  expenses
increased  approximately $54,000, or 28% from the quarter ended October 31, 2003
to  the  quarter  ended  October  31, 2004.  The increase is attributable to the
recognition of approximately $45,000 in wages and contract labor associated with
the  operations  of  the  retail  services  acquired during the first quarter of
fiscal  2005.

     Legal  and  professional  Fees.  Legal  and  professional  fees  increased
approximately  $240,000,  or 100% from the quarter ended October 31, 2003 to the
quarter  ended October 31, 2004. The increase is attributable to the recognition
of  approximately  $150,000  in  professional  fees  associated with a marketing
campaign  that  commenced during the first quarter of fiscal 2005. Additionally,
during  the quarter we recognized approximately $90,000 in legal fees associated
to  the  lawsuit  for  stock  fraud and manipulation by various institutions, as
describe  in  the  legal  preceding  section  of  this  report.

     Depreciation  and  Amortization. Depreciation and amortization increased by
approximately  100%  or  $23,000  from the quarter ended October 31, 2003 to the
quarter ended October 31, 2004. The increase is attributed to the recognition of
depreciation  expense  and amortization on the NexTone VoIP soft-switch that was
acquired  at  the  last  quarter  of  fiscal  2004.

     Operating  Loss.  The  Company's  operating loss increased by approximately
$267,000  or  153%  from the quarter ended October 31, 2003 to the quarter ended
October  31,  2004. The increase in operating loss is attributed to the increase
of  $293,000  in  SG&A and the increase of approximately $23,000 in depreciation
and  amortization  in  the  first  quarter  of fiscal 2005 compared to the first
quarter  of  fiscal 2004. The increase in SG&A and depreciation and amortization
were  offset  slightly by the increase in gross margin of approximately $45,000.

     Debt  forgiveness  income.  Our  debt  forgiveness  income  increased
approximately  $460,000  from  the


                                       13
<PAGE>
quarter ended October 31, 2003 to the quarter ended October 31, 2004. During the
quarter ended October 31, 2004, we negotiated an exchange of various liabilities
for  equity.  These  settlements  were related to the settlement of the $859,500
liability  with  Alfonso  Torres  Roqueni,  the  former  owner of the concession
license  acquired  in  July  2000, and the settlement of a $250,000 note payable
with  Infraestructura  Espacial,  S.A  de  C.V.  and Tomas Revesz, a former ATSI
director.  The  debt  forgiveness income was based on the difference between the
market  price  of  ATSI  equity  at  the  time  of issuance and the market price
calculated  at  the  time  of  the  settlement  of  the  debt.

     Other  Income  (expense).  Other  income  and expense is comparable between
quarter  at  approximately  $31,000  for  the quarter ended October 31, 2004 and
$32,000  for  the  quarter  ended  October  31,  2003.

     Preferred  Stock Dividends.  Preferred Stock Dividends expense decreased by
approximately  $56,000  between  periods,  from  $94,000  for  the quarter ended
October  31,  2003 to $38,000 during the quarter ended October 31, 2004.  During
fiscal  2004  we converted all Redeemable Preferred Series F and Series G shares
to  common.  As  a result of these conversions no dividends were incurred during
the  quarter  ended  October  2004  related  to  these  securities.

     Net  loss  to  Common  Stockholders.  The  net  loss  for the quarter ended
October  31,  2004  decreased  to  $51,000  from  $301,000 for the quarter ended
October  31,  2003.  The  decrease  in  net  loss to common stockholders was due
primarily  to  the recognition of debt forgiveness income of $460,000 during the
quarter  and  the  $56,000  reduction  of  preferred  stock  dividends  payable.

LIQUIDITY AND CAPITAL RESOURCES

     Cash  used  in  operating activities:  During the quarter ended October 31,
2004, operations consumed approximately $366,000 in cash.  This cash consumed by
operations  is  primarily  due  to  net losses of approximately $13,000 incurred
during  the  quarter ending October 31, 2004 and the non-cash income of $460,000
arising  from  the  forgiveness of debts.  We recognized an increase in accounts
payable  of  approximately  $90,000,  increase  in  accrued  liabilities  of
approximately $105,000. The increase in accrued liabilities and accounts payable
is  primarily  due  to the company recognizing approximately $31,000 in interest
expense  associated with various notes, the accrual of preferred stock dividends
of  $38,000  and  the  accrual  of  professional  fees  of approximately $16,000
associated  with  the  first  quarter  review and legal consulting work rendered
during  the quarter.  Also, we recognized an increase in accounts receivables of
$131,000 associated with the billing to our customers at the end of the quarter,
which  we  collected subsequent to the quarter ending October 31, 2004.  We also
recognized  an  increase  in  prepaid  expenses  for  $20,000  related  to  the
prepayments  made  to  our  vendors  for  the additional services and additional
capacity  required  form  our  vendors.

     Cash  provided  used  in  investing  activities:  During  the quarter ended
October  31,  2004,  the  Company  acquired a new router, copier and printer for
$20,000. During the quarter we paid $6,000 in cash towards this acquisition. The
new  router  was  acquired  to  compensate  the  increase  in  volume of minutes
processed through our network during the quarter ending October 31, 2004.

     Additionally,  during  quarter ended October 31, 2004, ATSI entered into an
Asset  Purchase Agreement with Hinotel, Inc., a Hispanic owned Competitive Local
Exchange  Carrier  ("CLEC")  based in South Texas. The assets purchase under the
agreement  included  Hinotel's  customer base, a customer management and billing
system, and supplier contracts. The transaction also included the assignment and
transfer  of  the  CLEC license in the State of Texas. The purchase price of the
assets  was  $31,500,  paid  in 40,000 shares of ATSI common stock and $7,500 in
cash.

     Cash  (used in)/ provided by financing activities: During the quarter ended
October 31, 2004 we received approximately $286,000 for the issuance of debt and
received  $14,000  from  the  exercise  of  warrants.


                                       14
<PAGE>
     Overall,  our  net operating, investing and financing activities during the
quarter  ended  October 31, 2004 provided a decrease of approximately $80,000 in
cash  balances.  We  intend  to  cover  our  monthly operating expenses with our
remaining  available  cash.  Additionally, we will continue to pursue additional
equity  offerings to cover our deficiencies in cash reserves.  However, there is
no  assurance  that  we  will be able to secure the equity offerings required to
supplement  our  deficiencies  in  cash  reserves.

     Our  working  capital  deficit  at  October  31,  2004  was  approximately
$17,716,000.  This  represents  a  decrease of approximately $1,232,000 from our
working  capital  deficit  at  July  31,  2004.  The  decrease  can primarily be
attributed  to  the  settlement  of  various liabilities through the issuance of
common  stock.  These  settlement  were  related  to  the settlement of $859,500
liability  with  Alfonso  Torres  Roqueni,  the  former  owner of the concession
license acquired in July 2000 and the settlement of a $250,000 note payable with
Infraestructura  Espacial, S.A de C.V. and Tomas Revesz, a former ATSI director.

     Our  working  capital  deficit  at  October 31, 2004 included approximately
$12,104,000  related to the pre-petition liabilities (net of assets), associated
with  ATSI-Texas  and  TeleSpan,  the two subsidiaries currently under Chapter 7
Bankruptcy.  The  pre-petition  liability  balance  is composed primarily of the
following:

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

Our  working  capital deficit after exclusion of the pre-petition liabilities is
approximately  $5,612,000.

     Our  current  obligations  include  $690,861  owed  to  Recap  Marketing  &
Consulting;  LLP  related various unsecured convertible promissory notes bearing
interest  at  the rate of 12% per annum.  We entered into these promissory notes
during  fiscal  2004  and  the  first  quarter  of  fiscal  2005.

     Our current liability includes approximately $1,149,000 associated with the
Series  D  Cumulative  preferred stock.  Of this balance, $942,000 is associated
with the full redemption of this security and $207,000 is related to the accrued
dividends  as  of  October  31,  2004.

     Our  current  liabilities  include approximately $1,292,000 associated with
the  Series  E  Cumulative  preferred  stock.  Of  this  balance,  $1,058,000 is
associated  with the full redemption of this security and $234,000 is related to
the accrued dividends as of October 31, 2004.  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 stock fraud and
manipulation.  These  liabilities  combined  for  a  total  of  approximately
$2,441,000.  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.


                                       15
<PAGE>
     We  also  have  approximately  $1,152,000  of  current  liabilities (net of
assets)  associated  to the discontinued operations of the retail services unit.
This balance is composed primarily of approximately $453,000 owed to the Mexican
taxing authorities related to a note assumed through the acquisition of Computel
and  approximately $699,000 related to income taxes owed as of October 31, 2004.

ONGOING OPERATIONS

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

     As  outlined  in Note 3 and 7 to the financial statements, we have incurred
amounts of debt to finance our working capital requirements.  During the quarter
ended  October  31,  2004, we borrowed a total of $300,000 and subsequent to the
quarter  ended  October  31,  2004  we barrowed an additional $50,000 from Recap
Marketing  & Consulting, LLP; to fund our operating expenses and other corporate
expenses.  This  debt  will  be  applied  to  the  payment of warrants issued to
certain  individual  affiliates  of  Recap  Marketing  &  Consulting,  LLP.

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

ITEM 3. CONTROLS AND PROCEDURES

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

     In  March  2001,  Comdisco  sued  our subsidiary, ATSI-Texas, for breach of
contract  for  failing  to  pay  lease  amounts  due under a lease agreement for
telecommunications  equipment.  Comdisco  claims  that  the  total  amount  owed
pursuant to the lease was $926,185 and that the lease terms called for 36 months
of  lease payments. Comdisco is claiming that ATSI-Texas only paid thirty months
of  lease  payments.  ATSI-Texas  disputes  that  the


                                       16
<PAGE>
amount  owed  was  $926,185 since it received only $375,386 in financing and has
paid  over  $473,000  in lease payments and, thus, believe that it has satisfied
its obligation under the lease terms. Comdisco has filed a claim with the United
States Bankruptcy Court of the Western District of Texas in which the bankruptcy
of  ATSI-Texas  is  pending. The Company does not have a liability for the lease
payments  and  expects  the  obligation  of ATSI-Texas will be discharged in the
pending  Chapter  7  case.

     In  July  2002,  we were notified by the Dallas Appraisal District that the
administrative  appeal from the appraisal of the ATSI-Texas office in the Dallas
InfoMart  was  denied.  The  property  was appraised at over $6 million dollars.
The  property  involved  included  a  Nortel  DMS  250/300  switch,  associated
telecommunications equipment and office furniture and computers.  ATSI-Texas was
unable  to  proceed in its appeal of the appraisal due to its failure to pay the
taxes  under  protest.  During fiscal 2002 we recorded approximately $260,000 of
property  tax  expense  related  to the ATSI-Texas Dallas office.  Currently the
Dallas County taxing authority has filed claim with the United States Bankruptcy
Court  of the Western District of Texas for approximately $783,843.  This amount
also  included  a  property  tax estimate of approximately $230,572 for calendar
year  2003.  We  believe  this  amount  is  incorrect.  All  of the property was
removed  and  impaired from the Dallas site as a result of ATSI-Texas filing for
protection  under  Chapter  11  of  the  Bankruptcy  code.  We believe that this
liability  ATSI-Texas  will  be  discharged  upon  the completion of the pending
Chapter  7  case.

     In  October  2002,  we filed a lawsuit in the Southern District of New York
against several financial parties for stock fraud and manipulation.  The case is
based  on convertible preferred stock financing transactions involving primarily
two firms: Rose Glen Capital and the Shaar Fund.  We believe that Rose Glenn and
the Shaar Fund engaged in a scheme to defraud us into selling multiple series of
convertible preferred stock and to manipulate the price of our stock downward in
order to take advantage of increased conversion rates resulting from the decline
in  stock  price.  We  are  not  able  to determine the likelihood of an adverse
outcome or the amount or range of any losses that could result from this matter.
If  we  receive  an  adverse  decision  in  this  suit, it is likely we would be
required  to issue a substantial amount of our common shares to our Series D and
Series  E  holders  and  the  current  owners  of  our  common  shares  would be
substantially  diluted.

     In December 2003, we 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-Texas and Martin W. Seidler seeking judicial review
on  the  decision  issued by the Texas Workforce Commission awarding a claim for
$81,092 against us for unpaid wages. The District Court has set a trial date for
July  11,  2005.  We  are vigorously pursuing this action but cannot predict the
outcome  of  this  litigation  or  the  amount or range of a potential loss.  An
adverse  decision  in  this  matter  would have a material adverse effect on our
financial  condition  in  the  period  in  which  it  is  entered.

     In  January  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 in the ATSI-Texas
Bankruptcy  case  allowed Vianet Communications, Inc. to amend its claim pending
in the Bankruptcy of ATSI-Texas and assert against ATSI its claim for $1,720,387
arising  from an alleged breach of contract by ATSI-Texas.  The Bankruptcy Court
then  ordered  the  lawsuit  to be remanded back to state court for hearing. The
District  Court  has  set  a trial date for March 9, 2005. We cannot predict the
outcome  of  this  litigation  or  the  amount or range of a potential loss.  An
adverse  decision  in our declaratory judgment action and in the claim by Vianet
Communications,  Inc.  would  have  a  material  adverse effect on our financial
condition  in  the  period  in  which  it  is  entered.

     We  are  also a party to additional claims and legal proceedings arising in
the  ordinary  course  of  business.  We  believe  it is unlikely that the final
outcome of any of the claims or proceedings to which we are a party would have a
material  adverse  effect  on  our  financial  statements;  however,  due to the
inherent  uncertainty  of litigation, the range of possible loss, if any, cannot
be  estimated  with  a  reasonable  degree  of  precision  and  there  can be no


                                       17
<PAGE>
assurance  that  the  resolution of any particular claim or proceeding would not
have  an  adverse  effect on our results of operations in the period in which it
occurred.

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     The following table contains the names, number of shares, dates and
consideration paid for common stock by persons who purchased securities in
private placements during the three months ended October 31, 2004.  All such
transactions were exempt from registration under the Securities Act under
Section 4(2) as transactions not involving a public offering because of the
limited number of persons involved in each transaction, the access of such
persons to information about the Company that would have been available in a
public offering, and the absence of any public solicitation or advertising.


<TABLE>
<CAPTION>
                         NUMBER
PURCHASE                OF SHARES             CONSIDERATION                   DATE
----------------------  ---------  -----------------------------------  ----------------
<S>                     <C>        <C>                                  <C>
Alexandro Hinojosa Sr.     40,000  Acquisition of Hinotel  for $24,000  August 1, 2004

Alfonso Torres Roqueni    687,600  Settlement of debt for $859,500      October 1, 2004

Tomas Revesz               30,000  Settlement of debt for $250,000      October 26, 2004
</TABLE>

ITEM  6. EXHIBITS AND REPORTS ON FORM 8-K

(a)     Exhibits:

        The exhibits listed below are filed as part of this report.

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

10.1    Confidential  Settlement  Agreement and Mutual Release, Note Payable and
        Lock  out  agreement  between  ATSI  and  Alfonso  Torres Roqueni, dated
        October 1, 2004. *

10.2    Confidential  Settlement  Agreement  and Mutual Release between ATSI and
        Infraestructura  Especial  and   Tomas Revesz, dated October 26, 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. *

99.1    Public  Utility  Commission of Texas ("PUC") approval of transfer of the
        Service  Provider  Certificate of Authority ("SPCOA") from Hinotel, Inc.
        to ATSI's subsidiary,  Telefamilia  Communications,  Inc.  Dated
        October 25, 2004. *

*  Filed herewith


                                       18
<PAGE>
(b)  Reports  on  Form  8-K

     -    On  August  1, 2004, we filed a Current Report on Form 8-K under Items
          1.01, 2.01, 3.02 and 9.01, we announced that ATSI Communications, Inc.
          and Hinotel, Inc. entered into an asset purchase agreement under which
          ATSI  acquired  all  of  Hinotel's  retail  customer  base, a customer
          management  and  billing  system,  certain  supplier contracts and the
          Competitive  Local  Exchange  Carrier  (CLEC)  license in exchange for
          $7,500  in  cash  and  40,000  shares  of  ATSI  common  stock.

                                    SIGNATURE

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


                                    ATSI COMMUNICATIONS, INC.
                                             (Registrant)


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

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


                                       19
<PAGE>