--------------------------------------------------------------------------------

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

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

                                   FORM 10-QSB

(MARK ONE)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 For the quarterly period ended January 31, 2005

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE  ACT OF 1934 For the transition period from  ________ to_______


                         Commission File Number 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
           Incorporation or Organization)            Identification No.)


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

                                 (210) 614-7240
                (Issuer's Telephone Number, Including Area Code)

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

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

                   CLASS                OUTSTANDING AS OF MARCH 15, 2005
         Common Stock, $.001 par                  8,960,311

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


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

                                  QUARTERLY REPORT ON FORM 10-QSB
                               FOR THE QUARTER ENDED JANUARY 31, 2005

                                               INDEX

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

  Consolidated Balance Sheet as of January 31, 2005 . . . . . . . . . . . . . . . . . . . . . . . 1
  Consolidated Statements of Operations for the Three and Six Months
  Ended January 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
  Consolidated Statements of Comprehensive Loss for the Three and Six Months
  Ended January 31, 2005 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
  Consolidated Statements of Cash Flows for the Six Months Ended January 31, 2005 and 2004. . .   4
  Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . .   5

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

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

PART II. OTHER INFORMATION

Item 3. Default upon senior securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
</TABLE>


<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)


                                                                                           January 31,
                                                                                              2005
                                                                                          -------------
<S>                                                                                       <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents                                                                 $          4
Accounts receivable                                                                                175
Prepaid & other current assets                                                                      68
                                                                                          -------------
    Total current assets                                                                           247
                                                                                          -------------

PROPERTY AND EQUIPMENT                                                                             152
  Less - Accumulated depreciation                                                                  (41)
                                                                                          -------------
    Net property and equipment                                                                     111
                                                                                          -------------

OTHER ASSETS, net
Intangible Assets, net of accumulated amortization of $16                                           16
                                                                                          -------------
    Total assets                                                                          $        374
                                                                                          =============

LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Pre-petition liabilities of bankrupt subsidiaries, net of assets                          $     12,104
Accounts payable                                                                                   541
Accrued liabilities                                                                                593
Current portion of obligation under capital leases                                                   3
Notes payable                                                                                      120
Convertible debentures                                                                             275
Series D Cumulative Preferred Stock, 3,000 shares authorized, 742 shares issued and
outstanding.                                                                                     1,160
Series E Cumulative Preferred Stock, 10,000 shares authorized, 1,170 shares issued and
outstanding                                                                                      1,310
Liabilities from discontinued operations, net of assets                                          1,152
                                                                                          -------------
    Total current liabilities                                                                   17,258
                                                                                          -------------
LONG-TERM LIABILITIES:
Notes payable                                                                                      500
Obligation under capital leasses, less current portion                                              10
Other                                                                                                9
                                                                                          -------------
    Total long-term liabilities                                                                    519
                                                                                          -------------

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, 14,001,030  issued
and outstanding                                                                                     14
                                                                                                     9
Additional paid in capital                                                                      71,777
Accumulated deficit                                                                            (89,705)
Other comprehensive Income                                                                         502
                                                                                          -------------
    Total stockholders' deficit                                                                (17,403)
                                                                                          -------------
    Total liabilities and stockholders' deficit                                           $        374
                                                                                          =============
</TABLE>


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

                                                      Three months ended January 31,         Six-months ended January 31,
                                                   ------------------------------------  ------------------------------------
                                                         2005               2004               2005               2004
                                                   -----------------  -----------------  -----------------  -----------------
<S>                                                <C>                <C>                <C>                <C>
OPERATING REVENUES:
  Services
    Carrier services                               $          1,446   $            209   $          2,215   $            242
    Network services                                             74                 42                147                 84
                                                   -----------------  -----------------  -----------------  -----------------

    Total operating revenues                                  1,520                251              2,362                326

OPERATING EXPENSES:
    Cost of services (exclusive of depreciation
    and amortization, shown below)                            1,422                218              2,194                267
    Selling, general and administrative                          82                128                306                249
    Legal and professional fees                                  40                 88                305                149
    Non-cash warrant expense, for services                      591                 15                591                 30
    Non-cash stock-based compensation, employees                474                  -                474                  -
    Bad debt expense                                              4                  -                  4                  4
    Depreciation and amortization                                24                  -                 47                  -
                                                   -----------------  -----------------  -----------------  -----------------

    Total operating expenses                                  2,637                449              3,921                699
                                                   -----------------  -----------------  -----------------  -----------------

OPERATING LOSS                                               (1,117)              (198)            (1,559)              (373)

OTHER INCOME (EXPENSE):
  Other expense                                                   4                  -                  4                  1
  Debt forgiveness income                                         -                  -                460                  -
  Loss on an unconsolidated affiliate                             -                (53)                 -                (60)
  Interest expense                                              (35)               (25)               (66)               (52)
                                                   -----------------  -----------------  -----------------  -----------------

    Total other income (expense)                                (31)               (78)               398               (111)

NET LOSS                                                     (1,148)              (276)            (1,161)              (484)

LESS: PREFERRED DIVIDENDS                                       (38)               (93)               (76)              (186)
                                                   -----------------  -----------------  -----------------  -----------------

NET LOSS TO COMMON
STOCKHOLDERS                                                ($1,186)             ($369)           ($1,237)             ($670)
                                                   =================  =================  =================  =================

BASIC AND DILUTED LOSS PER SHARE                             ($0.19)            ($0.36)            ($0.24)            ($0.65)
                                                   =================  =================  =================  =================

WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING                                      6,346,695          1,036,550          5,088,741          1,036,550
                                                   =================  =================  =================  =================
</TABLE>


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

                                              For the three-months ended January 31,  For the six-month ended January 31,
                                                    2005                2004                2005                2004
                                             ------------------  ------------------  ------------------  ------------------
<S>                                          <C>                 <C>                 <C>                 <C>
Net loss to common stockholders                        ($1,186)              ($369)            ($1,237)              ($670)

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

Comprehensive loss to common stockholders              ($1,186)              ($369)            ($1,237)              ($670)
                                             ==================  ==================  ==================  ==================
</TABLE>


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


                                                                            Six-months ended January 31,
                                                                               2005              2004
                                                                         ----------------  ----------------
<S>                                                                      <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS                                                                         ($1,161)            ($484)
Adjustments to net loss:
      Debt forgiveness income                                                       (460)                -
Adjustments to reconcile net loss to cash used in operating activities:
      Depreciation and amortization                                                   47                 -
      Loss on an unconsolidated affiliate                                              -                60
      Non-cash issuance of stock grants and options, employees                       474                 -
      Non-cash issuance of common stock  and warrants for services                   662                32
     Provision for losses on accounts receivable                                       4                 4
     Changes in operating assets and liabilities:
    Increase in
        Accounts receivable                                                         (150)              (29)
        Prepaid expenses and other                                                   (42)               (6)
     Increase  in
        Accounts payable                                                             130               139
        Accrued liabilities                                                           39                28
                                                                         ----------------  ----------------
Net cash used in operating activities                                               (457)             (256)
                                                                         ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of property & equipment                                                  (8)                -
   Cash proceeds from sale of ATSICOM                                                  -               125
   Investment in joint venture  in ATSICOM                                             -               (47)
   Acquisition of business                                                            (8)                -
                                                                         ----------------  ----------------
Net cash (used in) provided by investing activities                                  (16)               78
                                                                         ----------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from notes payable                                                       370               125
   Payments  on notes payable                                                       (774)                -
   Proceeds from the exercise of warrants                                            788                 -
   Principal payments on capital lease obligation                                     (1)                -
                                                                         ----------------  ----------------
Net cash provided by financing activities                                            383               125
                                                                         ----------------  ----------------
DECREASE IN CASH                                                                     (90)              (53)
                                                                         ----------------  ----------------
CASH AND CASH EQUIVALENTS, beginning of period                                        94               140
                                                                         ----------------  ----------------
CASH AND CASH EQUIVALENTS, end of period                                 $             4   $            87
                                                                         ================  ================

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


                                        4
<PAGE>
                            ATSI COMMUNICATIONS, INC.
                                AND SUBSIDIARIES

               NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                    (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 - STOCK BASED COMPENSATION

ATSI  accounts  for its employee stock-based compensation plans under Accounting
Principles  Board  ("APB")  Opinion  No.  25,  Accounting  for  Stock  Issued to
Employees.  ATSI granted 2,104,001 options to purchase common stock to employees
in  the six months ending January 31, 2005.  Sixty percent of these options vest
immediately  and  the  remaining  balances vest over three years.  ATSI recorded
compensation  expense  of  $42  under  the intrinsic value method during the six
months  ended  January  31,  2005.

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

<TABLE>
<CAPTION>
                                Three Months Ended        Six Months Ended
                                    January 31,             January 31,
                                2005          2004        2005        2004
                            -------------  -----------  ---------  -----------
<S>                         <C>            <C>          <C>        <C>
Net loss as reported        $     (1,186)  $     (369)  $ (1,237)  $     (670)
Add: stock based
  compensation
  determined under
  intrinsic value-
  based method                        42            -         42            -
Less: stock based
  compensation
  determined under
  fair value-
  based method                    (1,000)           -     (1,000)           -
                            -------------  -----------  ---------  -----------

  Pro forma net loss        $     (2,144)  $     (369)  $ (2,195)  $     (670)


                                        5
<PAGE>
Basic and diluted net
  loss per common share:
  As reported               $       (.19)  $     (.36)  $   (.25)  $     (.65)
  Pro forma                         (.34)        (.36)      (.44)        (.65)
</TABLE>

Additionally,  during the six months ended January 31, 2005, ATSI issued 955,946
shares and 58,245 shares to its employees and consultants with a market value of
$463  and  $40,  respectively.


NOTE 3 - 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 center assets and assumed
all  related  liabilities.  Additionally,  under the agreement, LGV acquired the
"Comercializadora"  License  owned by ATSI Mexico and the Teleport and Satellite
Network  License  and  the  20-year  Packet  Switching  Network license owned by
SINFRA.  The Chapter 7 Bankruptcy Trustee received $17,500, which represents all
the  proceeds from the sale of these entities.  The Chapter 7 Bankruptcy Trustee
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):

<TABLE>
<CAPTION>
               CURRENT LIABILITIES:             January 31, 2005
               --------------------             ----------------
<S>                                             <C>
               Accounts payable                 $          7,496
               Accrued liabilities                         2,015
               Notes payable                                 386
               Capital leases                              2,207
                                                ----------------

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

NOTE 4 - NOTES PAYABLE


                                        6
<PAGE>
During  the  first six months of fiscal 2005, ATSI borrowed a total of $370 from
Recap  Marketing  &  Consulting,  LLP  and  entered  into  a series of unsecured
convertible promissory notes bearing interest at the rate of 12% per annum, with
the following maturity dates:

<TABLE>
<CAPTION>
                   ORIGINATION DATE    AMOUNT     MATURITY DATE
                   ----------------   -------  ------------------
<S>                                   <C>      <C>
                   August 23, 2004    $     25  August 23, 2005
                   August 30, 2004          25  August 30, 2005
                   September 15, 2004       25  September 15, 2005
                   September 20, 2004      150  September 20, 2005
                   October 8, 2004          25  October 8, 2005
                   October 12, 2004         25  October 12, 2005
                   October 15, 2004         10  October 15, 2005
                   October 25, 2004         15  October 25, 2004
                   November 5, 2004         25  November 5, 2005
                   November 15, 2004        15  November 15, 2005
                   December 1, 2004         10  December 1, 2005
                   December 21, 2004        10  December 1, 2005
                   January 4, 2005          10  January 4, 2006
                                      --------
                               TOTAL  $    370
                                      --------
</TABLE>

On November 1, 2004, ATSI entered into a note payable with Franklin Cardwell and
Jones,  PC,  for $103 associated with legal and professional services previously
rendered.  The  promissory  note payable has a maturity date of December 1, 2005
and has an annual interest rate of 6%. The note is secured by ATSI equipment and
accounts  receivable.  If  ATSI  pays the total outstanding balance on or before
April  30, 2005, all accrued interest is waived and ATSI receives a 10% discount
on  the total outstanding balance. Beginning November 1, 2005, the holder of the
note  may  convert  all  or  any part of the outstanding balance and accrued and
unpaid  interest  to shares of ATSI's common stock equal to the amount converted
divided  by  the  product  of (a). 90 times (b) the five-day average of the last
sales of the common stock prior to the conversion day.

NOTE 5 - WARRANTS

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

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

During  the 2nd quarter of fiscal 2005, individual affiliates of Recap Marketing
&  Consulting  LLP  elected to exercise 3,380,644 warrants and Recap Marketing &
Consulting LLP forgave notes in the amount of $774 as the conversion price.  The
following  reflect  the  various  exercise  of  warrants.


                                        7
<PAGE>
<TABLE>
<CAPTION>
                                                COMMON
                                               ---------
          EXERCISE DATE       EXERCISE PRICE    SHARES
          ------------------  ---------------  ---------
<S>                           <C>              <C>
          September 21, 2004  $    0.01/share    762,000
          October 14, 2004    $    0.01/share    436,000
          October 15, 2004    $    0.01/share    150,000
          November 2, 2004    $    0.01/share     50,000
          November 11, 2004   $    0.01/share     36,100
          November 11, 2004   $    0.25/share    495,072
          December 10, 2004   $    0.25/share    300,000
          December 15, 2004   $    0.25/share      4,928
          December 15, 2004   $    0.50/share     95,072
          December 17, 2004   $    0.50/share    130,000
          January 14, 2005    $    0.50/share    834,472
          January 31, 2005    $    0.50/share     87,000
                                               ---------
                                               3,380,644
                                               ---------
</TABLE>

On  November  1, 2004, ATSI extended the consulting agreements for an additional
six  months  with certain individual affiliates of Recap Marketing & Consulting,
LLP  that provided for the issuance of compensation warrants to purchase a total
of  1,000,000  shares  of ATSI's common stock at price of $0.50 per share. These
warrants  expire  on  October  31,  2005.  At  signing  of  the extension to the
consulting  agreements  ATSI  recognized  $591  of non-cash compensation expense
associated with the issuance of these warrants.


NOTE 6 - SETTLEMENT AND RESTRUCTURING OF DEBT

On  October 1, 2004, ATSI entered into a Settlement Agreement and Mutual release
with  Alfonso  Torres  Roqueni,  the  former  owner  of  the  concession license
purchased  by ATSICOM in July 2000.  Under the settlement agreement amounts owed
of  $1,360 were restructured and settled in exchange for the issuance by ATSI of
687,600  common  shares  for the payment of $860 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.
The note accrues interest at the rate of 6% per annum and has a maturity date of
October 1, 2007, with no monthly payments. ATSI recognized a gain of $235 on the
settlement  of  this  debt.

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


                                        8
<PAGE>
NOTE 7 - ACQUISITION OF A LOCAL EXCHANGE CARRIER COMPANY

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

NOTE 8 - SUBSEQUENT EVENTS

Subsequent  to  January  31,  2005, ATSI amended the extension to the consulting
agreement  entered  into with certain individual affiliates of Recap Marketing &
Consulting,  LLP on November 1, 2004.  The amended consulting agreement provides
for  the  issuance  of  compensation  warrants  to purchase a total of 1,250,000
shares  of  ATSI's  common  stock at prices as indicated in the following table.
These  warrants  expire  on  February  28,  2006.

<TABLE>
<CAPTION>
                              COMMON SHARES  EXERCISE PRICE
                              -------------  ---------------
<S>                                          <C>
                                    300,000  $    0.40/share
                                    300,000  $    0.30/share
                                    650,000  $    0.35/share
</TABLE>

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

GENERAL

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


                                        9
<PAGE>
     Carrier Services: We provide VoIP termination services to United States and
     Latin  American  telecommunications  companies  who  lack  transmission
     facilities,  require  additional  capacity  or  do  not have the regulatory
     licenses  to  terminate  traffic in Mexico, Asia, the Middle East and Latin
     America.  Typically these telecommunications companies offer their services
     to  the  public  for  domestic  and  international  long distance services.

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

     On  August  1, 2004, we acquired a Local Exchange Carrier ("CLEC") based in
South  Texas.  This  acquisition  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 $43,000 in retail services
revenue  during  the  six  months  ended  January  31,  2005.

     We  have incurred operating losses and deficiencies in operating cash flows
in  each  year  since  our  inception  in 1994 and expect our losses to continue
through  July  31,  2005.  Our  operating  losses  were $8,485,000, for the year
ending  July  31,  2004.  We  had  an  operating loss of $1,559,000, for the six
months  ended  January  31, 2005 and a working capital deficit of $17,010,000 at
January  31,  2005.  Due  to such 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 six months ended January 31, 2005 management
continued  to  pursue  different avenues for funding and we entered into various
short-term  convertible  promissory  notes  in the aggregate amount of $370,000.
These  funds  have  allowed  the  Company  to  pay those operating and corporate
expenses  that  were not covered by our current cash inflows from operations. We
will  continue  to  require  additional  funding  until  the  cash  inflows from
operations  are  sufficient to cover the monthly operating expenses. There is no
assurance  that  we will be successful in securing additionally funding over the
next  twelve  months.

RESULTS OF OPERATIONS

The  following  table sets forth certain items included in the Company's results
of  operations  in  dollar  mounts and as a percentage of total revenues for the
three  and  six-month  period  ended  January  31,  2005  and  2004.


                                        10
<PAGE>
<TABLE>
<CAPTION>
                                                     Three months ended January 31,            Six months ended January 31,
                                                     ------------------------------            ----------------------------
                                                       2005                 2004                2005                  2004
                                                       ----                 ----                ----                  ----
                                                                                  (Unaudited)
                                                                                  -----------
                                                   $         %          $         %          $         %          $         %
                                               ---------  --------  ---------  --------  ---------  --------  ---------  --------
<S>                                            <C>        <C>       <C>        <C>       <C>        <C>       <C>        <C>
Operating revenues
------------------
Services
    Carrier services                           $  1,446        95%  $    209        83%  $  2,215        94%  $    242        74%
    Network services                                 74         5%        42        17%       147         6%        84        26%
                                               ---------  --------  ---------  --------  ---------  --------  ---------  --------

Total operating revenues                          1,520       100%       251       100%     2,362       100%       326       100%

Cost of services (Exclusive of depreciation
and amortization, shown below)                    1,422        94%       218        87%     2,194        93%       267        82%
                                               ---------  --------  ---------  --------  ---------  --------  ---------  --------

Gross Margin                                         98         6%        33        13%       168         7%        59        18%

Selling, general and administrative
expense                                              82         5%       128        51%       306        13%       249        76%

Legal and professional fees                          40         3%        88        35%       305        13%       149        46%

Non-cash warrant expense, for services              591        39%        15         6%       591        25%        30         9%

Non-cash stock-based compensation, employees        474        31%         -         0%       474        20%         -         0%

Bad debt expense                                      4         0%         -         0%         4         0%         4         1%

Depreciation and amortization                        24         2%         -         0%        47         2%         -         0%
                                               ---------  --------  ---------  --------  ---------  --------  ---------  --------

Operating loss                                   (1,117)      -73%      (198)      -79%    (1,559)      -66%      (373)     -114%

Debt forgiveness income                               0         0%         -         0%       460        19%         -         0%
Other expense                                       (31)       -2%       (78)      -31%       (62)       -3%      (111)      -34%
                                               ---------  --------  ---------  --------  ---------  --------  ---------  --------

Net loss                                         (1,148)      -76%      (276)     -110%    (1,161)      -49%      (484)     -148%
                                               ---------  --------  ---------  --------  ---------  --------  ---------  --------

Less: preferred stock dividends                     (38)       -3%       (93)      -37%       (76)       -3%      (186)      -57%
                                               ---------  --------  ---------  --------  ---------  --------  ---------  --------

Net loss to applicable to
common shareholders                             ($1,186)      -78%     ($369)     -147%   ($1,237)      -52%     ($670)     -206%
                                               ---------            ---------            ---------            ---------
</TABLE>


                                       11
<PAGE>
THREE  MONTHS  ENDED JANUARY 31, 2005 COMPARED TO THREE MONTHS ENDED JANUARY 31,
2004

     Operating  Revenues.  Consolidated  operating  revenues  increased  by 506%
between  periods  from  $251,000  for  the  quarter  ended  January  31, 2004 to
$1,520,000  for  the  quarter  ended  January  31,  2005.

     Carrier  services revenues increased approximately $1,237,000, or 592% from
the  quarter  ended January 2004 to the quarter ended January 2005.  Our carrier
traffic  increased  from  approximately 4.9 million minutes in the quarter ended
January  31, 2004 to approximately 41.9 million minutes during the quarter ended
January  31,  2005.  The  increase  in revenue and carrier traffic can mainly be
attributed  to  the  growth in VoIP carrier services since the implementation of
the NexTone VoIP soft-switch during the last quarter of fiscal 2004.

     Network  services  revenues increased approximately 76% or $32,000 from the
quarter  ended  January  31,  2004  to  the quarter ended January 31, 2005.  The
increase  in  network  services  revenue  is  primarily  due to the purchase and
assignment of a network services contract from American TeleSource International
de  Mexico  S.A  de C.V. (ASTIMEX).  Under the assignment and purchase agreement
with  ATSIMEX,  we acquired the remaining term of the network services contract,
which  extended  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 revenue
rate.

     Cost  of  Services  (Exclusive  of  depreciation  and  amortization).  The
consolidated  cost  of  services  increased by approximately $1,204,000 from the
quarter  ended  January  31,  2004  to  the  quarter ended January 31, 2005. The
increase  in  cost  of  services  is  a direct result of the increase in carrier
services  revenue  and network services revenue. As mentioned above, our carrier
traffic  increased  from  approximately  4.9  million minutes during the quarter
ended  January  31,  2004  to  approximately 41.9 million minutes in the quarter
ended  January  31, 2005, thus increasing our cost of services between quarters.

     Selling,  General  and  Administrative  (SG&A)  Expenses.  SG&A  expenses
decreased  by  approximately  $46,000, or 36% from the quarter ended January 31,
2004  to  the  quarter ended January 31, 2005. The decease is attributable to an
adjustment  in salaries and wages and a reversal of an over-accrual for services
previously  recognized.

     Legal  and  professional  Fees.  Legal  and  professional fees decreased by
approximately  $48,000,  or  55%  from the quarter ended January 31, 2004 to the
quarter  ended January 31, 2005.  During the quarter ended January 31, 2004, the
company  incurred  approximately $50,000 various legal and professional services
associated to the proxy preparation and annual shareholder meeting.  These legal
and professional expenses were not incurred during the quarter ended January 31,
2005.

     Non-cash  warrant  expense,  for  services.  Non-cash  warrant  expense for
services  increased  by  $576,000 from the quarter ended January 31, 2004 to the
quarter  ended  January 31, 2005.  This increase is primarily due to recognition
of  approximately  $591,000 in non-cash compensation expense associated with the
consulting  agreements  entered into with certain individual affiliates of Recap
Marketing & Consulting, LLP.  The consulting agreement provided for the issuance
of  compensation  warrants  to  purchase  a  total of 1,000,000 shares of ATSI's
common  stock  at  price  of  $0.50  per  share.

     Non-cash stock-based compensation, employees. Non-cash compensation expense
to  employees  increased  by $474,000 from the quarter ended January 31, 2004 to
the  quarter  ended  January  31,  2005.  This  increase  is  attributed  to the
recognition  of  approximately  $474,000  in  non-cash  compensation  expense
associated with the grant of stock options and stock grants to our employees and
board  of  directors.

     Bad  debt  expense.  Bad  debt expense increased by $4,000 from the quarter
ended  January  31,  2004  to  the


                                       12
<PAGE>
quarter  ending January 31, 2005.  During the quarter ending January 31, 2005 we
recognized  $4,000  in  bad  debt  expense  associated  with  the write-off of a
carriers  services  customer  that  ceased  operations.

     Depreciation  and Amortization.  Depreciation and amortization increased by
100%  or  $24,000  from  the quarter ended January 31, 2004 to the quarter ended
January 31, 2005.  The increase is attributed to the recognition of depreciation
expense  and  amortization  on  the  NexTone  VoIP soft-switch that was acquired
during  the  last  quarter  of  fiscal  2004.

     Operating  Loss.  The  Company's  operating loss increased by approximately
$919,000  or  464%  from the quarter ended January 31, 2004 to the quarter ended
January  31,  2005.  The  increase  in  operating  loss  is  attributed  to  the
recognition  of  $591,000  in  non-cash warrant expense and $474,000 in non-cash
stock  based  compensation  expense  associated with the stock options and stock
grants  awarded to the company employees and board of directors. The increase in
non-cash warrant and compensation expense was offset slightly by the increase in
gross  margin  of  approximately  $65,000.

     Other  expense.  Other  expense decreased approximately $47,000 or 60% from
the  quarter  ended January 31, 2004 to the quarter ended January 31, 2005.  The
decrease in other expense is attributed to the decrease in loss in investment in
ATSICOM of approximately $53,000 recognized during the quarter ended January 31,
2004  associated  with  our  portion of the losses on our investment in ATSICOM.
During  the  quarter  ended  January 31, 2005 the Company did not have a loss in
ATSICOM.

     Preferred  Stock Dividends.  Preferred Stock Dividends expense decreased by
approximately  $55,000  between  periods,  from  $93,000  for  the quarter ended
January  31,  2004 to $38,000 during the quarter ended January 31, 2005.  During
fiscal  2004  we converted all Redeemable Preferred Series F and Series G shares
to  common.  As a result of these conversions, no dividends were incurred during
the  quarter  ended  January  2005  related  to  these  securities.

     Net  loss  to  Common  Stockholders.  The  net  loss  for the quarter ended
January  31,  2005  increased  to $1,186,000 from $369,000 for the quarter ended
January  31,  2004.  The  increase  in net loss to common stockholders is mainly
attributed  to  the  recognition  of  $591,000  in  non-cash warrant expense and
$474,000  in non-cash stock based compensation expense associated with the stock
options  and  grants  awarded  to  the  company  employees.  Also,  there was an
increase  in  depreciation  and  amortization  of approximately $24,000 from the
quarter  ended  January  31,  2004  to  the quarter ended January 31, 2005.  The
increase  in  non-cash warrant and compensation expense and depreciation expense
was  offset  slightly  by the increase in gross margin of approximately $65,000.

SIX MONTHS ENDED JANUARY 31, 2005 COMPARED TO SIX MONTHS ENDED JANUARY 31, 2004

     Operating  Revenues.  Consolidated  operating  revenues  increased  by 625%
between  periods from $326,000 for the six months ended January 31, 2004 to $2.4
million  for  the  six  months  ended  January  31,  2005.

     Carrier  services revenues increased approximately $2 million, or 815% from
the  six  months  ended  January 2004 to the six months ended January 2005.  Our
VoIP carrier traffic increased from approximately 5.7 million minutes during the
six  months  ended January 31, 2004 to approximately 65.4 million minutes during
the  six  months  ended  January  31, 2005.  The increase in revenue and carrier
traffic  can  mainly  be  attributed  to an increase in capacity during the last
quarter  of  fiscal  2004.

     Network  services  revenues increased approximately 75% or $63,000 from the
six-month  period  ended  January 31, 2004 to the six-month period ended January
31,  2005.  The  increase  in  network  services revenue is primarily due to the
purchase  and assignment of a network services contract from American TeleSource
International  de  Mexico  S.A  de  C.V.  (ASTIMEX).  Under  the  assignment and
purchase  agreement  with  ATSIMEX,  we  acquired  the  remaining  term  of


                                       13
<PAGE>
the  contract, which extended 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 revenue
rate.

     Cost  of  Services  (Exclusive  of  depreciation  and  amortization).  The
consolidated  cost  of services increased by approximately $1.9 million, or 722%
from  the  six months ended January 31, 2004 to the six months ended January 31,
2005.  The  increase  in  cost of services is a direct result of the increase in
carrier  services  revenue and network services revenue. As mentioned above, our
carrier  traffic increased from approximately 5.7 million minutes during the six
months  ended  January 31, 2004 to approximately 65.4 million minutes in the six
months  ended  January  31,  2005,  thus increasing our cost of services between
periods.

     Selling,  General  and  Administrative  (SG&A)  Expenses.  SG&A  expenses
increased  by  approximately  $57,000,  or  23%  from the six-month period ended
January 31, 2004 to the six-month period ended January 31, 2005. The increase is
attributed  to  the  recognition  of approximately $61,000 in wages and contract
labor  associated  with  the  operations  of the retail services acquired during
fiscal  2005.

     Legal  and  professional  Fees.  Legal  and  professional fees increased by
approximately $156,000, or 105% from the six-month period ended January 31, 2004
to the six-month period ended January 31, 2005.  The increase is attributable to
the recognition of approximately $150,000 in professional fees associated with a
marketing  campaign  that  commenced  during  the  first quarter of fiscal 2005.
Additionally, during the six-month period we recognized approximately $90,000 in
legal fees associated to the lawsuit for stock fraud and manipulation by various
institutions.

     Non-cash  warrant  expense,  for  services.  Non-cash  warrant  expense for
services increased by $561,000 from the six months ended January 31, 2004 to the
six months ended January 31, 2005. This increase is primarily due to recognition
of  approximately  $591,000 in non-cash compensation expense associated with the
consulting  agreements  entered into with certain individual affiliates of Recap
Marketing  & Consulting, LLP. The consulting agreement provided for the issuance
of  compensation  warrants  to  purchase  a  total of 1,000,000 shares of ATSI's
common  stock  at  price  of  $0.50  per  share.

     Non-cash stock-based compensation, employees. Non-cash compensation expense
to employees increased by $474,000 from the six months ended January 31, 2004 to
the  six  months  ended  January  31,  2005.  This  increase  is  attributed  to
recognition  of  approximately  $474,000  in  non-cash  compensation  expense
associated with the grant of stock options and stock grants to our employees and
board  of  directors.

     Bad  debt expense.  Bad debt expense remained consistent at $4,000 over the
six  months  ended  January  31, 2004 and the six months ended January 31, 2005.
During  the  six  months ended January 31, 2005 we recognized $4,000 in bad debt
expense  associated  with  the  write-off  of  a carriers services customer that
ceased  operations.

     Depreciation  and Amortization.  Depreciation and amortization increased by
100%  or  $47,000  from  the six months ended January 31, 2004 to the six months
ended  January  31,  2005.  The  increase  is  attributed  to the recognition of
depreciation  expense  and amortization on the NexTone VoIP soft-switch that was
acquired  during  the  last  quarter  of  fiscal  2004.

     Operating  Loss.  The  Company's  operating loss increased by approximately
$1,186,000  or 318% from the six months ended January 31, 2004 to the six months
ended  January  31,  2005.  The  increase in operating loss is attributed to the
recognition  of  $591,000  in  non-cash warrant expense and $474,000 in non-cash
stock  based  compensation  expense  associated with the stock options and stock
grants  awarded to the company employees and board of directors. The increase in
non-cash warrant and compensation expense was offset slightly by the increase in
gross  margin  of  approximately  $109,000.


                                       14
<PAGE>
     Debt  forgiveness  income.  Our  debt  forgiveness  income  increased
approximately  $460,000  from  the  six months ended January 31, 2004 to the six
months  ended  January  31,  2005. During the six-month period ended January 31,
2005,  we  negotiated  and  exchanged  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  expense.  Other  expense decreased approximately $49,000 or 44% from
the  six months ended January 31, 2004 to the six months ended January 31, 2005.
The  decrease  in  other  expense  is  attributed  to  the  decrease  in loss in
investment  in ATSICOM of approximately $53,000 recognized during the six months
ended  January  31,  2004  associated  with  our  portion  of  the losses on our
investment in ATSICOM.  During the six months ended January 31, 2005 the Company
did  not  have  any  loss  in  ATSICOM.

     Preferred  Stock Dividends.  Preferred Stock Dividends expense decreased by
approximately  $110,000  between periods, from $186,000 for the six months ended
January  31,  2004  to  $76,000  during  the  six months ended January 31, 2005.
During  fiscal  2004 we converted all Redeemable Preferred Series F and Series G
shares  to common.  As a result of these conversions, no dividends were incurred
during  the  six  months  ended  January  2005  related  to  these  securities.

     Net  loss  to  Common  Stockholders.  The net loss for the six months ended
January  31, 2005 increased to $1,237,000 from $670,000 for the six months ended
January  31,  2004.  The  increase  in net loss to common stockholders is mainly
attributed  to  the  recognition  of  $591,000  in  non-cash warrant expense and
$474,000  in non-cash stock based compensation expense associated with the stock
options  and  stock  grants  awarded  to  the  company  employees  and  board of
directors.  Also,  there  was  an  increase  in depreciation and amortization of
approximately  $47,000  from  the  six  months ended January 31, 2004 to the six
months ended January 31, 2005. The increase in non-cash warrant and compensation
expense  and  depreciation  expense was offset slightly by the increase in gross
margin  of  approximately  $109,000.

LIQUIDITY AND CAPITAL RESOURCES

     Cash  used in operating activities: During the six months ended January 31,
2005,  operations consumed approximately $457,000 in cash. This cash consumed by
operations is primarily due to net losses of approximately $1.2 million incurred
during  the  six months ending January 31, 2005 plus non-cash income of $460,000
arising  from  the forgiveness of debts. During the six months ended January 31,
2005 we recognized $474,000 in non-cash compensation expense associated with the
stock  grants and stock options awarded to the employees and board of directors.
Additionally, we recognized $662,000 in non-cash warrant expense associated with
the  consulting  services  agreement  entered  into during the second quarter of
fiscal 2005. We also recognized an increase in accounts payable of approximately
$130,000  and  an  increase in accrued liabilities of approximately $39,000. The
increase  in  accrued  liabilities  and accounts payable is primarily due to the
company  recognizing  approximately  $66,000 in interest expense associated with
various  notes,  the  accrual  of  preferred  stock dividends of $76,000 and the
accrual  of  professional  fees  of  approximately  $20,000  associated with the
quarterly  reviews  and  legal  consulting  work rendered during the six months.
Also,  we  recognized an increase in accounts receivables of $150,000 associated
with the billing to our customers during the quarter ending January 31, 2005. We
also  recognized  an  increase  in  prepaid  expenses for $30,000 related to the
prepayments/retainers to our attorneys for legal services.

     Cash  provided  used  in  investing activities: During the six months ended
January  31,  2005,  the Company made various payments for $8,000 related to the
acquisition  of  some  telecommunications equipment acquired during fiscal 2005.
Additionally,  during  the  quarter ended October 31, 2004, ATSI entered into an
Asset  Purchase  Agreement  with


                                       15
<PAGE>
Hinotel,  Inc.,  a  Hispanic  owned  Competitive Local Exchange Carrier ("CLEC")
based  in  South  Texas.  The  assets  purchase  under  the  agreement  included
Hinotel's  customer base, a customer management and billing system, and supplier
contracts.  The  transaction  also  included  the assignment and transfer of the
CLEC  license  in  the  State  of  Texas.  The  purchase price of the assets was
$31,500,  paid  in  40,000  shares  of  ATSI  common  stock  and $7,500 in cash.

     Cash  provided  by  financing activities:  During the quarter ended October
31,  2004  we  made  principal  payments  on  our  capital  lease obligation for
approximately  $1,000 and we received $788,000 from the exercise of warrants and
$370,000  from  proceeds  from various notes payables.  In addition, a result of
the  exercise  of  warrants we also recognized payments of $774,000 on our notes
payable.

     Overall,  our  net operating, investing and financing activities during the
six  months  ended January 31, 2005 provided a decrease of approximately $90,000
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  January  31,  2005  was  approximately
$17,010,000.  This  represents  a  decrease of approximately $1,938,000 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  January 31, 2005 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  $103,000  owed  to  Attorneys for legal
services  rendered  during  fiscal  2004.

     Our current liability includes approximately $1,160,000 associated with the
Series  D  Cumulative  preferred stock.  Of this balance, $942,000 is associated
with the full redemption of this security and $218,000 is related to the accrued
dividends  as  of  January  31,  2005.

     Our  current  liabilities  include approximately $1,310,000 associated with
the  Series  E  Cumulative  preferred  stock.  Of  this  balance,  $1,058,000 is
associated  with the full redemption of this security and $252,000 is related to
the accrued dividends as of January 31, 2005.  During the fiscal year ended July
31,  2003, the Company was de-listed from AMEX and according to the terms of the
Series  E  Cumulative  preferred  stock  Certificate  of  Designation,  if  the


                                       16
<PAGE>
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
$2,470,000.  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.

     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 January 31, 2005.

ONGOING OPERATIONS

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

     As outlined in Note 4 to the financial statements, we have incurred amounts
of  debt  to  finance  our  working capital requirements.  During the six months
ended  January  31,  2005, we borrowed a total of $370,000 and subsequent to the
quarter  ended  January  31,  2005  we barrowed an additional $24,000 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


                                       17
<PAGE>
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  3.  DEFAULTS  UPON  SENIOR  SECURITIES

As  of  January  31,  2005,  the  Company  was  in  arrears  with respect to the
declaration  of  the  following  dividends  payable on outstanding shares of its
Preferred  Stock:

<TABLE>
<CAPTION>
<S>                                       <C>
     Series A Cumulative Preferred Stock  $193,750
     Series D Cumulative Preferred Stock   217,930
     Series E Cumulative Preferred Stock   251,925
                                          --------

     TOTAL                                $663,605
                                          ========
</TABLE>

ITEM  6.  EXHIBITS  AND  REPORTS  ON  FORM  8-K/A

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

     EXHIBIT
     NUMBER
     ------

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

     4.2  Convertible  Promissory  Note  issued  to Franklin Cardwell and Jones,
          PC. *

     10.1 Extension  to  consulting  agreements  with  Hunter  M.  A.  Carr  and
          Donald W. Sapaugh. *

     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. *

     (b)  The  following  Current  Reports  on  Form  8-K  were filed during the
          second quarter of fiscal 2005.

     None


                                        18
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                                   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: March 15, 2005                By:     /s/  Arthur L. Smith
      --------------                        --------------------
                                    Name:   Arthur  L.  Smith
                                    Title:  President and
                                            Chief Executive Officer

Date: March 15, 2005                By:     /s/ Antonio Estrada
      --------------                        -------------------
                                    Name:   Antonio  Estrada
                                    Title:  Corporate Controller
                                            (Principal Accounting and Principal
                                            Financial Officer)


                                       19
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