----

**UNITED      STATES **

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

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**FORM      10-QSB/A**

**(Mark      One**

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

| **[                 ]** | **TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE                ACT OF                1934**For                the transition period from _____________ to                _________________ |
|------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**ATSI      COMMUNICATIONS, INC.**

| **Nevada**(State                or Other Jurisdiction of Incorporation                or Organization)                                         |   | **74-2849995**(IRS                Employer 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)                          |

| **Class**                              | **Outstanding                As Of December 11, 2005** |
|----------------------------------------|--------------------------------------------------------|
|                                   |                                                   |
| Common                Stock, $.001 par | 13,142,289                                             |

----

**ATSI      COMMUNICATIONS, INC.**

**AND      SUBSIDIARIES**

**QUARTERLY      REPORT ON FORM 10-QSB/A**

**FOR      THE QUARTER ENDED OCTOBER 31, 2005**

**INDEX**

| **PART                I. FINANCIAL INFORMATION**                                                                                          | Page   |
|-------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                      |   |
| Item                1. Financial Statements (Unaudited)                                                                                   |   |
|                                                                                                                                      |   |
| Consolidated                Balance Sheets as of October 31, 2005 and July 31, 2005                                                       | 1      |
| Consolidated                Statements of Operations for the Three Months Ended October 31, 2005                and                2004   | 2      |
| Consolidated                  Statements of Comprehensive Loss for the Three Months Ended                  October 31, 2005 and 2004 | 3      |
| Consolidated                Statements of Cash Flows for the Three Months Ended October 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         | 10     |
|                                                                                                                                      |   |
| Item                3. Controls and Procedures                                                                                       | 17     |
|                                                                                                                                      |   |
| **PART                II. OTHER INFORMATION**                                                                                             |   |
|                                                                                                                                      |   |
| Item                1. Legal Proceedings                                                                                                  | 17     |
|                                                                                                                                      |   |
| Item                2. Unregistered Sales of Equity Securities and use of                proceeds                                         | 18     |
|                                                                                                                                      |   |
| Item                3. Default upon senior securities                                                                                     | 18     |
|                                                                                                                                      |   |
| Item                6. Exhibits                                                                                                           | 18     |

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**Statement      Regarding This Amendment**

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**PART        1. FINANCIAL INFORMATION**

**ITEM          1. FINANCIAL STATEMENTS**

|                                                                                                                                                                                                                                                  |   |   | October                31, |   |   | July                31, |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------|--------|--------|-------------------------|--------|
|                                                                                                                                                                                                                                                  |   |   | 2005                       |   |   | 2005                    |   |
| ASSETS                                                                                                                                                                                                                                                |   |   | (unaudited)                |   |   |                    |   |
| CURRENT                ASSETS:                                                                                                                                                                                                                        |   |   |                       |   |   |                    |   |
| Cash                and cash equivalents                                                                                                                                                                                                              |   | $      | 3                          |   | $      | 29                      |   |
| Accounts                receivable                                                                                                                                                                                                                    |   |   | 229                        |   |   | 170                     |   |
| Prepaid                & other current assets                                                                                                                                                                                                     |   |   | 28                         |   |   | 44                      |   |
| Total                current assets                                                                                                                                                                                                                   |   |   | 260                        |   |   | 243                     |   |
|                                                                                                                                                                                                                                                  |   |   |                       |   |   |                    |   |
| PROPERTY                AND EQUIPMENT                                                                                                                                                                                                                 |   |   | 231                        |   |   | 228                     |   |
| Less                - accumulated depreciation                                                                                                                                                                                                        |   |   | (112                       | )      |   | (90                     | )      |
| Net                property and equipment                                                                                                                                                                                                             |   |   | 119                        |   |   | 138                     |   |
|                                                                                                                                                                                                                                                  |   |   |                       |   |   |                    |   |
| Total                assets                                                                                                                                                                                                                           |   | $      | 379                        |   | $      | 381                     |   |
|                                                                                                                                                                                                                                                  |   |   |                       |   |   |                    |   |
| LIABILITIES                AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                                  |   |   |                       |   |   |                    |   |
| CURRENT                LIABILITIES:                                                                                                                                                                                                                   |   |   |                       |   |   |                    |   |
| Accounts                payable                                                                                                                                                                                                                       |   | $      | 612                        |   | $      | 606                     |   |
| Accrued                liabilities                                                                                                                                                                                                                    |   |   | 1,008                      |   |   | 1,033                   |   |
| Current                portion of obligation under capital leases                                                                                                                                                                                     |   |   | 3                          |   |   | 3                       |   |
| Notes                payable, related party                                                                                                                                                                                                           |   |   | 16                         |   |   | 16                      |   |
| Notes                payable, Franklin, Cardwell & Jones                                                                                                                                                                                          |   |   | 77                         |   |   | 77                      |   |
| Convertible                debentures                                                                                                                                                                                                                 |   |   | 234                        |   |   | 234                     |   |
| Series                D Cumulative Preferred Stock, 3,000 shares authorized, 742 shares                issued                and outstanding                                                                                                          |   |   | 1,193                      |   |   | 1,182                   |   |
| Series                E Cumulative Preferred Stock, 10,000 shares authorized, 1,170 shares                issued and outstanding                                                                                                                      |   |   | 1,767                      |   |   | 1,749                   |   |
| Derivative                financial instrument liabilities (Note 6)                                                                                                                                                                                   |   |   | 29                         |   |   | 24                      |   |
| Liabilities                from discontinued operations, net of assets                                                                                                                                                                                |   |   | -                          |   |   | 1,152                   |   |
| Total                current liabilities                                                                                                                                                                                                              |   |   | 4,939                      |   |   | 6,076                   |   |
|                                                                                                                                                                                                                                                  |   |   |                       |   |   |                    |   |
| LONG-TERM                LIABILITIES:                                                                                                                                                                                                                 |   |   |                       |   |   |                    |   |
| Notes                payable                                                                                                                                                                                                                          |   |   | 500                        |   |   | 500                     |   |
| Obligation                under capital leases, less current portion                                                                                                                                                                                  |   |   | 8                          |   |   | 9                       |   |
| Other                                                                                                                                                                                                                                                 |   |   | 7                          |   |   | 8                       |   |
| Total                long-term liabilities                                                                                                                                                                                                            |   |   | 515                        |   |   | 517                     |   |
|                                                                                                                                                                                                                                                  |   |   |                       |   |   |                    |   |
| Total                liabilities                                                                                                                                                                                                                      |   |   | 5,454                      |   |   | 6,593                   |   |
|                                                                                                                                                                                                                                                  |   |   |                       |   |   |                    |   |
| STOCKHOLDERS'                DEFICIT:                                                                                                                                                                                                                 |   |   |                       |   |   |                    |   |
| Series                            A Cumulative Convertible Preferred Stock, 50,000 shares                            authorized, 3,750                            shares issued and                            outstanding                            |   |   | -                          |   |   | -                       |   |
| Series                            H Convertible Preferred Stock, 16,000,000 shares authorized,                            13,769,866                            and 13,912,372 shares issued and outstanding,                            respectively |   |   | 14                         |   |   | 14                      |   |
| Common                            stock, $0.001, 150,000,000 shares authorized, 11,557,883                            and 10,397,222                            shares issued and outstanding,                            respectively                |   |   | 12                         |   |   | 10                      |   |
| Additional                paid in capital                                                                                                                                                                                                             |   |   | 66,854                     |   |   | 66,458                  |   |
| Accumulated                deficit                                                                                                                                                                                                                    |   |   | (71,956                    | )      |   | (73,196                 | )      |
| Other                comprehensive income                                                                                                                                                                                                             |   |   | 1                          |   |   | 502                     |   |
| Total                stockholders' deficit                                                                                                                                                                                                            |   |   | (5,075                     | )      |   | (6,212                  | )      |
| Total                liabilities and stockholders' deficit                                                                                                                                                                                            |   |   | 379                        |   |   | 381                     |   |

----

|                                                                                                                                                                                                                                             |   |  Three                months ended October 31, |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------|
|                                                                                                                                                                                                                                             |   |                                                | 2005 |   |   | 2004 |   |
| OPERATING                REVENUES:                                                                                                                                                                                                          |   |                                                |   |   |   |   |   |
| Carrier                services                                                                                                                                                                                                             |   | $                                                   | 2,313 |   | $ | 769 |   |
| Network                services                                                                                                                                                                                                             |   |                                                | 9 |   |   | 73 |   |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| Total                operating revenues                                                                                                                                                                                                     |   |                                                | 2,322 |   |   | 842 |   |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| OPERATING                EXPENSES:                                                                                                                                                                                                          |   |                                                |   |   |   |   |   |
| Cost                  of services (exclusive of depreciation and amortization, shown                  below)                                                                                                                                |   |                                                | 2,240 |   |   | 772 |   |
| Selling,                  general and administrative expense (exclusive of legal and professional                  fees, non cash stock compensation to employees and warrants for                  services,                  shown below) |   |                                                | 149 |   |   | 210 |   |
| Legal                and professional fees                                                                                                                                                                                                  |   |                                                | 27 |   |   | 239 |   |
| Non-cash                issuance of common stock and warrants for services                                                                                                                                                                  |   |                                                | 64 |   |   | 40 |   |
| Non-cash                stock-based compensation, employees                                                                                                                                                                                 |   |                                                | 180 |   |   | - |   |
| Depreciation                and amortization                                                                                                                                                                                                |   |                                                | 22 |   |   | 23 |   |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| Total                operating expenses                                                                                                                                                                                                     |   |                                                | 2,682 |   |   | 1,284 |   |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| OPERATING                (LOSS)                                                                                                                                                                                                             |   |                                                | (360 | ) |   | (442 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| OTHER                INCOME (EXPENSE):                                                                                                                                                                                                      |   |                                                |   |   |   |   |   |
| Debt                forgiveness income                                                                                                                                                                                                      |   |                                                | - |   |   | 460 |   |
| Loss                on derivative instrument liabilities                                                                                                                                                                                    |   |                                                | (26 | ) |   | (1,830 | ) |
| Interest                expense                                                                                                                                                                                                             |   |                                                | (26 | ) |   | (34 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| Total                other income (expense), net                                                                                                                                                                                            |   |                                                | (52 | ) |   | (1,404 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| NET                LOSS FROM CONTINUING OPERATIONS                                                                                                                                                                                          |   |                                                | (412 | ) |   | (1,846 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| DISCONTINUED                OPERATIONS (NOTE 4)                                                                                                                                                                                             |   |                                                |   |   |   |   |   |
| Gain                on disposal of discontinued operations                                                                                                                                                                                  |   |                                                | 1,652 |   |   | - |   |
| NET                INCOME FROM DISCONTINUED OPERATIONS                                                                                                                                                                                      |   |                                                | 1,652 |   |   | - |   |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| NET                INCOME (LOSS):                                                                                                                                                                                                           |   |                                                | 1,240 |   |   | (1,846 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| LESS:                PREFERRED DIVIDENDS                                                                                                                                                                                                    |   |                                                | (41 | ) |   | (38 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| NET                INCOME (LOSS) TO COMMON STOCKHOLDERS                                                                                                                                                                                     |   |                                                | 1,199 |   |   | (1,884 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| BASIC                INCOME (LOSS) PER SHARE                                                                                                                                                                                                |   | $                                                   | 0.11 |   |   | ($0.52 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| From                continuing operations                                                                                                                                                                                                   |   |                                                | ($0.04 | ) |   | ($0.52 | ) |
| From                discontinued operations                                                                                                                                                                                                 |   | $                                                   | 0.15 |   | $ | 0.00 |   |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| DILUTED                INCOME (LOSS) PER SHARE                                                                                                                                                                                              |   | $                                                   | 0.04 |   |   | ($0.52 | ) |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| From                continuing operations                                                                                                                                                                                                   |   |                                                | ($0.01 | ) |   | ($0.52 | ) |
| From                discontinued operations                                                                                                                                                                                                 |   | $                                                   | 0.05 |   | $ | 0.00 |   |
|                                                                                                                                                                                                                                        |   |                                                |   |   |   |   |   |
| WEIGHTED                AVERAGE COMMON SHARES OUTSTANDING                                                                                                                                                                                   |   |                                                | 10,945,338 |   |   | 3,598,383 |   |

----

|                                                                   |   | Three                months ended October 31, |
|-------------------------------------------------------------------|--------|-----------------------------------------------|
|                                                                   |   |                                          | 2005 |   |   | 2004 |   |
| Net                income (loss) to common stockholders           |   | $                                             | 1,199 |   |   | ($1,884 | ) |
|                                                              |   |                                          |   |   |   |   |   |
| Foreign                currency translation adjustment            |   |                                          | (501 | ) |   | - |   |
|                                                              |   |                                          |   |   |   |   |   |
| Comprehensive                income (loss) to common stockholders |   | $                                             | 698 |   |   | ($1,884 | ) |

----

|                                                                                                       |   | Three                months ended October 31, |
|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|
|                                                                                                       |   |                                          | 2005 |   |   | 2004 |   |
|                                                                                                  |   |                                          |   |   |   |   |   |
| CASH                FLOWS FROM OPERATING ACTIVITIES:                                                  |   |                                          |   |   |   |   |   |
| NET                INCOME (LOSS)                                                                      |   | $                                             | 1,240 |   |   | ($1,846 | ) |
| Adjustments                to reconcile net loss to cash used in operating                activities: |   |                                          |   |   |   |   |   |
| Gain                in disposal of discontinued operations                                            |   |                                          | (1,652 | ) |   | - |   |
| Debt                forgiveness income                                                                |   |                                          | - |   |   | (460 | ) |
| Adjustments                to reconcile net loss to cash used in operating                activities: |   |                                          |   |   |   |   |   |
| Depreciation                and amortization                                                          |   |                                          | 22 |   |   | 23 |   |
| Non-cash                issuance of stock grants and options, employees                               |   |                                          | 180 |   |   | - |   |
| Non-cash                issuance of common stock and warrants for services                            |   |                                          | 64 |   |   | 40 |   |
| Loss                on derivative instrument liabilities                                              |   |                                          | 26 |   |   | 1,830 |   |
| Changes                in operating assets and liabilities:                                           |   |                                          |   |   |   |   |   |
| Accounts                receivable                                                                    |   |                                          | (59 | ) |   | (131 | ) |
| Prepaid                expenses and other                                                             |   |                                          | 15 |   |   | (20 | ) |
| Accounts                payable                                                                       |   |                                          | 67 |   |   | 90 |   |
| Accrued                liabilities                                                                    |   |                                          | 29 |   |   | 108 |   |
| Net                cash used in operating activities                                                  |   |                                          | (68 | ) |   | (366 | ) |
|                                                                                                  |   |                                          |   |   |   |   |   |
| CASH                FLOWS FROM INVESTING ACTIVITIES:                                                  |   |                                          |   |   |   |   |   |
| Purchases                of property & equipment                                                  |   |                                          | (3 | ) |   | (6 | ) |
| Acquisition                of business                                                                |   |                                          | - |   |   | (8 | ) |
| Net                cash used in investing activities                                                  |   |                                          | (3 | ) |   | (14 | ) |
|                                                                                                  |   |                                          |   |   |   |   |   |
| CASH                FLOWS FROM FINANCING ACTIVITIES:                                                  |   |                                          |   |   |   |   |   |
| Proceeds                from notes payable                                                            |   |                                          | - |   |   | 286 |   |
| Payments                on notes payable                                                              |   |                                          | - |   |   | 14 |   |
| Proceeds                from the exercise of warrants                                                 |   |                                          | 46 |   |   | - |   |
| Principal                payments on capital lease obligation                                         |   |                                          | (1 | ) |   | - |   |
| Net                cash provided by financing activities                                              |   |                                          | 45 |   |   | 300 |   |
| DECREASE                IN CASH                                                                       |   |                                          | (26 | ) |   | (80 | ) |
| CASH                AND CASH EQUIVALENTS, beginning of period                                         |   |                                          | 29 |   |   | 94 |   |
| CASH                AND CASH EQUIVALENTS, end of period                                               |   | $                                             | 3 |   | $ | 14 |   |
|                                                                                                  |   |                                          |   |   |   |   |   |
| SUPPLEMENTAL                DISCLOSURES:                                                              |   |                                          |   |   |   |   |   |
| Cash                paid for interest                                                                 |   |                                          | - |   |   | - |   |
| Cash                paid for income taxes                                                             |   |                                          | - |   |   | - |   |
|                                                                                                  |   |                                          |   |   |   |   |   |
| NON-CASH                TRANSACTIONS                                                                  |   |                                          |   |   |   |   |   |
| Issuance                of common stock for conversion of debt                                        |   | $                                             | 58 |   | $ | 733 |   |
| Issuance                of common stock for purchase of fixed & Intangible                assets  |   |                                          | - |   |   | 24 |   |
| Conversion                of preferred stock to common stock                                          |   |                                          | 17 |   |   | 206 |   |
| Fair                value of the derivative instrument                                                |   |                                          | - |   |   | - |   |
| Change                in derivative liabilities on warrants exercised                                 |   |                                          | 22 |   |   | 945 |   |

----

**ATSI      COMMUNICATIONS, INC.**

**AND      SUBSIDIARIES**

**NOTES      TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE      1 - BASIS OF PRESENTATION**

**NOTE      2 - STOCK BASED COMPENSATION**

----

|                                                                                                          |   | Three                months ended October 31, |
|---------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|
|                                                                                                          |   |                                          | 2005 |   |   | 2004 |   |
|                                                                                                          |   |                                          |   |   |   |   |   |
| Net                income (loss) to common Shareholders, as reported                                          |   | $                                             | 1,199,000 |   |   | ($1,884,000 | ) |
| Add:                  stock based compensation determined under intrinsic value based                  method |   |                                          | - |   |   | - |   |
| Less:                  stock based compensation determined under fair value based                  method     |   |                                          | (281,499 | ) |   | - |   |
|                                                                                                          |   |                                          |   |   |   |   |   |
| Pro                forma net income (loss)                                                                    |   | $                                             | 917,501 |   |   | ($1,884,000 | ) |
|                                                                                                          |   |                                          |   |   |   |   |   |
| Basic                net income (loss) per common share:                                                      |   |                                          |   |   |   |   |   |
| As                reported                                                                                    |   | $                                             | 0.11 |   |   | ($0.52 | ) |
| Pro                forma                                                                                      |   | $                                             | 0.08 |   |   | ($0.52 | ) |
|                                                                                                          |   |                                          |   |   |   |   |   |
| Diluted                net income (loss) per common share:                                                    |   |                                          |   |   |   |   |   |
| As                reported                                                                                    |   | $                                             | 0.04 |   |   | ($0.52 | ) |
| Pro                forma                                                                                      |   | $                                             | 0.03 |   |   | ($0.52 | ) |

|                                           |   | Three                Months Ended October 31, |
|------------------------------------------------|--------|-----------------------------------------------|
|                                           |   |                                          | 2005 |   |   | 2004 |   |
| Expected                dividends yield        |   |                                          | 0.00 | % |   | N/A |   |
| Expected                stock price volatility |   |                                          | 139 | % |   | N/A |   |
| Risk-free                interest rate         |   |                                          | 4.42 | % |   | N/A |   |
| Expected                life of options        |   |                                          | 3                years |   |   | N/A |   |

**NOTE      3 - SETTLEMENT OF NOTE RECEIVABLE **

----

**NOTE      4 - GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS **

**NOTE      5 - NOTES PAYABLE**

**NOTE      6 - DERIVATIVES **

| 1) | Note                  Payable, Franklin Cardwell and                  Jones |
|----|-----------------------------------------------------------------------------|

| 2) | 9%                      Convertible Debenture; |
|----|------------------------------------------------|

|  |           | Warrants                  to purchase common stock associated with the 2003 Debentures the                  ("2003                  Debenture Warrants"); |
|--|--------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 3)                           | Warrants                          to purchase common stock in connection with consulting                          agreements with two                          individuals (“Consulting                          Warrants”) |
|--|----------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                       |   | Embedded                  derivative liability balance |       | Cumulative |   |
|------------------------------------------------------------|--------|--------------------------------------------------------|------------|------------|--------|
|                                                       |   |                                                   | 10/31/2005 |       |   | 7/31/2005 |   |   | Net                  Change |   |
|                                                       |   |                                                   |            |       |   |  |   |   |  |   |
| Note                  Payable, Franklin Cardwell and Jones |   |                                                   | 13,493     |       |   | 18,851 |   |   | (5,358 | ) |
| 9%                  Convertible Debenture & warrants   |   |                                                   | -          |       |   | - |   |   | - |   |
| Consulting                  warrants                       |   |                                                   | 15,104     |       |   | 5,353 |   |   | 9,751 |   |
|                                                       |   |                                                   |       |       |   |   |   |   |   |   |
| Total:                                                     |   | $                                                      | 28,597     |       | $      | 24,204 |   | $ | 4,393 |   |

| Gain                (loss) on embedded derivative liabilities:       |   | Three                months ended October 30, |
|----------------------------------------------------------------------|--------|-----------------------------------------------|
|                                                                 |   |                                          | 2005 |   |   | 2004 |   |
| Note                Payable, Franklin Cardwell and Jones             |   | $                                             | 5,358 |   |   | - |   |
| 9%                Convertible Debenture & warrants               |   |                                          | - |   |   | (3,888 | ) |
| Consulting                warrants                                   |   |                                          | (31,291 | ) |   | (1,826,167 | ) |
|                                                                 |   |                                          |   |   |   |   |   |
| Total                gain (loss) on embedded derivative liabilities: |   |                                          | ($25,933 | ) |   | ($1,830,055 | ) |

----

**NOTE      7 - RESTATEMENT **

|                                                                            |   | For                the three months ended October 31, 2005                   |                       |   | For                the three months ended October 31,                2004 |
|---------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|----------------------------|--------|---------------------------------------------------------------------------|
|                                                                            |   |  (in                thousands, except share                information) |
|                                                                                 |   |                                                                         | As                Reported |   |                                                                      | Adjustments |   |   | As                Restated |   |   | As                Reported |   |   | Adjustments |   |   | As                Restated |   |
| **Summary                Balance Sheet**                                        |        |                                                                         |                       |   |                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                            |   |                                                                         |                       |   |                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                assets                                                     |   | $                                                                            | 379                        |   |                                                                      | - |   | $ | 379 |   | $ | 369 |   |   | - |   | $ | 369 |   |
|                                                                            |   |                                                                         |                       |   |                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pre-petition                Liabilities of bankrupt subsidiaries, net of assets |   |                                                                         | -                          |   |                                                                      | - |   |   | - |   |   | 12,104 |   |   | - |   |   | 12,104 |   |
| Accounts                payable                                                 |   |                                                                         | 612                        |   |                                                                      | - |   |   | 612 |   |   | 595 |   |   | - |   |   | 595 |   |
| Accrued                liabilities                                              |   |                                                                         | 953                        |   |                                                                      | 55 |   |   | 1,008 |   |   | 660 |   |   | 20 |   |   | 680 |   |
| Current                portion of obligation under capital leases               |   |                                                                         | 3                          |   |                                                                      | - |   |   | 3 |   |   | 3 |   |   | - |   |   | 3 |   |
| Notes                payable, related party                                     |   |                                                                         | 16                         |   |                                                                      | - |   |   | 16 |   |   | 16 |   |   | - |   |   | 16 |   |
| Notes                payable                                                    |   |                                                                         |                       |   |                                                                      |   |   |   |   |   |   | 691 |   |   | - |   |   | 691 |   |
| Notes                payable, Franklin Cardwell & Jones                     |   |                                                                         | 104                        |   |                                                                      | (27 | ) |   | 77 |   |   | - |   |   | - |   |   | - |   |
| Convertible                debentures                                           |   |                                                                         | 275                        |   |                                                                      | (41 | ) |   | 234 |   |   | 275 |   |   | (41 | ) |   | 234 |   |
| Series                D Cumulative Preferred Stock                              |   |                                                                         | 1,193                      |   |                                                                      | - |   |   | 1,193 |   |   | 1,149 |   |   | - |   |   | 1,149 |   |
| Series                E Cumulative Preferred Stock                              |   |                                                                         | 1,362                      |   |                                                                      | 405 |   |   | 1,767 |   |   | 1,292 |   |   | 405 |   |   | 1,697 |   |
| Derivative                financial instrument liabilities                      |   |                                                                         | -                          |   |                                                                      | 29 |   |   | 29 |   |   | - |   |   | 2,233 |   |   | 2,233 |   |
| Liabilities                from discontinued operations                         |   |                                                                         | -                          |   |                                                                      | - |   |   | - |   |   | 1,152 |   |   | - |   |   | 1,152 |   |
|                                                                            |   |                                                                         |                       |   |                                                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                current liabilities                                        |   |                                                                         | 4,518                      |   |                                                                      | 421 |   |   | 4,939 |   |   | 17,937 |   |   | 2,617 |   |   | 20,554 |   |

----

|                                                         |   | For                the three months ended October 31, 2005    |                             |   | For                the three months ended October 31,                2004 |              |
|--------------------------------------------------------------|--------|---------------------------------------------------------------|----------------------------------|--------|---------------------------------------------------------------------------|-------------------|
|                                                         |   |  (in                thousands, except share information) |
|                                                         |   |                                                          | As                Reported  |   |                                                                      | Adjustments  |   |   | As                Restated  |   |   | As                Reported  |   |   | Adjustments  |   |   | As                Restated  |   |
|                                                         |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                long-term liabilities                   |   |                                                          | 515                              |   |                                                                      | -                 |   |   | 515 |   |   | 520 |   |   | - |   |   | 520 |   |
|                                                         |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Series                A preferred stock                      |   |                                                          | -                                |   |                                                                      | -                 |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Series                H preferred stock                      |   |                                                          | 14                               |   |                                                                      | -                 |   |   | 14 |   |   | 14 |   |   | - |   |   | 14 |   |
| Common                stock                                  |   |                                                          | 12                               |   |                                                                      | -                 |   |   | 12 |   |   | 5 |   |   | - |   |   | 5 |   |
| Additional                paid in capital                    |   |                                                          | 72,279                           |   |                                                                      | (5,425            | ) |   | 66,854 |   |   | 69,950 |   |   | (5,726 | ) |   | 64,224 |   |
| Accumulated                deficit                           |   |                                                          | (76,960                          | )      |                                                                      | 5,004             |   |   | (71,956 | ) |   | (88,559 | ) |   | 3,109 |   |   | (85,450 | ) |
| Other                comprehensive income                    |   |                                                          | 1                                |   |                                                                      | -                 |   |   | 1 |   |   | 502 |   |   | - |   |   | 502 |   |
|                                                         |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                Stockholder's deficit                   |   |                                                          | (4,654                           | )      |                                                                      | (421              | ) |   | (5,075 | ) |   | (18,088 | ) |   | (2,617 | ) |   | (20,705 | ) |
|                                                         |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                liabilities and stockholder's deficit   |   | $                                                             | 379                              |   |                                                                      | -                 |   | $ | 379 |   | $ | 369 |   |   | - |   | $ | 369 |   |
|                                                         |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Summary                statements of operations**          |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues                                                     |   | $                                                             | 2,322                            |   |                                                                      | -                 |   | $ | 2,322 |   | $ | 842 |   |   | - |   | $ | 842 |   |
| Operating                expenses & depreciation expense |   |                                                          | 2,670                            |   |                                                                      | 12                |   |   | 2,682 |   |   | 1,284 |   |   | - |   |   | 1,284 |   |
| Operating                loss                                |   |                                                          | (348                             | )      |                                                                      | (12               | ) |   | (360 | ) |   | (442 | ) |   | - |   |   | (442 | ) |
| Other                Income                                  |   |                                                          | (16                              | )      |                                                                      | (36               | ) |   | (52 | ) |   | 429 |   |   | (1,833 | ) |   | (1,404 | ) |
| Net                income (loss) from continuing operations  |   |                                                          | (364                             | )      |                                                                      | (48               | ) |   | (412 | ) |   | (13 | ) |   | (1,833 | ) |   | (1,846 | ) |
| Net                income from discontinued operations       |   |                                                          | 1,652                            |   |                                                                      |              |   |   | 1,652 |   |   |   |   |   |   |   |   |   |   |
| Preferred                Dividends                           |   |                                                          | (41                              | )      |                                                                      | -                 |   |   | (41 | ) |   | (38 | ) |   | - |   |   | (38 | ) |
| Net                income (loss) to common stockholders      |   | $                                                             | 1,247                            |   |                                                                      | (48               | ) | $ | 1,199 |   |   | ($51 | ) |   | (1,833 | ) |   | ($1,884 | ) |
|                                                         |   |                                                          |                             |   |                                                                      |              |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                Earnings (loss) per share               |   | $                                                             | 0.11                             |   | $                                                                         | 0.00              |   | $ | 0.11 |   |   | ($0.01 | ) |   | ($0.51 | ) |   | ($0.52 | ) |
| From                continuing operations                    |   |                                                          | ($0.04                           | )      | $                                                                         | 0.00              |   |   | ($0.04 | ) |   | ($0.01 | ) |   | ($0.51 | ) |   | ($0.52 | ) |
| From                discontinued operations                  |   | $                                                             | 0.15                             |   | $                                                                         | 0.00              |   | $ | 0.15 |   | $ | 0.00 |   | $ | 0.00 |   | $ | 0.00 |   |
| Diluted                Earnings (loss) per share             |   | $                                                             | 0.04                             |   | $                                                                         | 0.00              |   | $ | 0.04 |   |   | ($0.01 | ) |   | ($0.51 | ) |   | ($0.52 | ) |
| From                continuing operations                    |   |                                                          | ($0.01                           | )      | $                                                                         | 0.00              |   |   | ($0.01 | ) |   | ($0.01 | ) |   | ($0.51 | ) |   | ($0.52 | ) |
| From                discontinued operations                  |   | $                                                             | 0.05                             |   | $                                                                         | 0.00              |   | $ | 0.05 |   | $ | 0.00 |   | $ | 0.00 |   | $ | 0.00 |   |

**NOTE      8-SUBSEQUENT EVENTS**
** **

**ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS**

*SPECIAL      NOTE: This Quarterly Report on Form 10-QSB/A 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.      Therefore, these types of statements may prove to be incorrect.*

----

**General**

*Carrier      Services: *

*Network      Services: *
* *

*Communication      Services:*

----

**Results      of Operations **

|                                                                                                              |   | Three                Months Ended October 31, |
|--------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|
|                                                                                                         |   |  2005                                    |   |  2004 |
|                                                                                                              |   |                                          | $ |   |   | % |   |   | $ |   |   | % |   |
| Operating                revenues                                                                            |        |                                          |   |   |   |   |   |   |   |   |   |   |   |   |
| Carrier services                                                                                        |   | $                                             | 2,313 |   |   | 100 | % | $ | 769 |   |   | 91 | % |
| Network                services                                                                              |   |                                          | 9 |   |   | 0 | % |   | 73 |   |   | 9 | % |
|                                                                                                         |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Total                operating revenues                                                                      |   |                                          | 2,322 |   |   | 100 | % |   | 842 |   |   | 100 | % |
|                                                                                                         |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Cost                  of services (Exclusive of depreciation and amortization, shown                  below) |   |                                          | 2,240 |   |   | 96 | % |   | 772 |   |   | 92 | % |
|                                                                                                         |   |                                          |   |   |   |   |   |   |   |   |   |   |   |
| Gross                Margin                                                                                  |   |                                          | 82 |   |   | 4 | % |   | 70 |   |   | 8 | % |

----

|        |   | Three                Months Ended October 31, |
|--------|--------|-----------------------------------------------|
|   |   |  2005                                    |   | 2004 |
|        |   |                                          | $ |   |   | % |   |   | $ |   |   | % |   |

| Selling,                  general and administrative expense (exclusive of legal and professional                  fees, non cash stock compensation to employees and warrants for                  services,                  shown below) |   |   | 149    |   |   | 6      | %      |   | 210     |   |   | 25     | %      |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|--------|
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Legal                and professional fees                                                                                                                                                                                                  |   |   | 27     |   |   | 1      | %      |   | 239     |   |   | 28     | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Non-cash                issuance of common stock and warrants for services                                                                                                                                                                  |   |   | 64     |   |   | 3      | %      |   | 40      |   |   | 5      | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Non-cash                stock-based compensation, employees                                                                                                                                                                                 |   |   | 180    |   |   | 8      | %      |   | -       |   |   | 0      | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Depreciation                and amortization                                                                                                                                                                                                |   |   | 22     |   |   | 1      | %      |   | 23      |   |   | 3      | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Operating                loss                                                                                                                                                                                                               |   |   | (360   | )      |   | -16    | %      |   | (442    | )      |   | -52    | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Debt                forgiveness income                                                                                                                                                                                                      |   |   | -      |   |   | 0      | %      |   | 460     |   |   | 0      | %      |
| Gain                (loss) on derivative instrument liabilities                                                                                                                                                                             |   |   | (26    | )      |   | -1     | %      |   | (1,830  | )      |   | -217   | %      |
| Interest                expense                                                                                                                                                                                                             |   |   | (26    | )      |   | -1     | %      |   | (34     | )      |   | -4     | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| NET                LOSS FROM CONTINUING OPERATIONS                                                                                                                                                                                          |   |   | (412   | )      |   | -18    | %      |   | (1,846  | )      |   | -219   | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| DISCONTINUED                OPERATIONS (NOTE 4)                                                                                                                                                                                             |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Gain                on disposal of discontinued operations                                                                                                                                                                                  |   |   | 1,652  |   |   | 71     | %      |   | -       |   |   | 0      | %      |
| NET                INCOME FROM DISCONTINUED OPERATIONS                                                                                                                                                                                      |   |   | 1,652  |   |   | 71     | %      |   | -       |   |   | 0      | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |        |   |   |    |   |   |        |   |
| NET                INCOME (LOSS):                                                                                                                                                                                                           |   |   | 1,240  |   |   | 53     | %      |   | (1,846  | )      |   | -219   | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Less:                preferred stock dividends                                                                                                                                                                                              |   |   | (41    | )      |   | -2     | %      |   | (38     | )      |   | -5     | %      |
|                                                                                                                                                                                                                                        |   |   |   |   |   |   |   |   |    |   |   |   |   |
| Net                income (loss) applicable to common stockholders                                                                                                                                                                          |   | $      | 1,199  |   |   | 52     | %      |   | ($1,884 | )      |   | -224   | %      |

**Three      Months ended October 31, 2005 Compared to Three Months ended October 31,      2004**

*Operating      Revenues*

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

----

*Selling,      General and Administrative (SG&A) Expenses (exclusive of legal and      professional fees, non-cash stock compensation to employees and common stock      and      warrants for services)*

*Legal      and professional Fees*

*Non-cash      issuance of common stock and warrants for services*

*Non-cash      stock-based compensation, employees*

*Depreciation      and Amortization*

*Operating      Loss*

*Debt      forgiveness income. *

*Gain      (loss) on derivative instruments liabilities, net. *

*Other      Income (expense)*

----

*Net      loss from continuing operations*

*Net      income from discontinued operations. *

*Preferred      Stock Dividends*

*Net      income (loss) to Common Stockholders*

**Liquidity      and Capital Resources**

*Cash      Position:*

----

|   | · | $103,454                owed to Attorneys for legal services rendered during fiscal 2004. |
|--------|--------|-------------------------------------------------------------------------------------------|

|   | · | $1,193,000                associated with the Series D Cumulative preferred stock. Of this                balance,                $942,000 is associated with the full redemption of this security                and                $251,000 is related to the accrued dividends as of October 31,                2005. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | $1,767,000                associated with the Series E Cumulative preferred stock. Of this                balance,                $1,463,000 is associated with the full redemption of this security                and                $304,000 is related to the accrued dividends as of October 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 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 United States District                Court                for the Southern District Court of New York against several individuals                and financial institutions, including the holders of our Series D                and E                Redeemable Preferred Stock, for, among other things, stock fraud                and                manipulation. On February 25, 2005, Judge Lewis A. Kaplan issued                a                memorandum opinion and order dismissing the complaint as to all defendants                with prejudice. We plan to appeal that decision once a final judgment                has                been entered. On July 9, 2004, we filed a separate but related lawsuit                in                the same court against Sam Levinson and Uri Wolfson. On April 27,                2005,                the court entered a final judgment dismissing that action with prejudice                based on the February 25, 2005 decision in the first action. On May                25,                2005, we appealed the dismissal of the second action to the United                States                Court of Appeals for the Second Circuit. On September 9, 2005 we                appealed                the dismissal of the first action to the United States Court of Appeals                for the Second Circuit. Our attorneys are also in the process of                investigating whether any other institutions participated in the                manipulation of the company's stock and to advise us whether to pursue                other legal |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Ongoing      operations**

----

**ITEM      3. CONTROLS AND PROCEDURES**

** **

**PART      II. OTHER INFORMATION**

**ITEM      1. LEGAL PROCEEDINGS**

----

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

**ITEM      3. DEFAULTS UPON SENIOR SECURITIES**

| Series                A Cumulative Preferred Stock |   | $      | 222,000 |   |
|----------------------------------------------------|--------|--------|---------|--------|
| Series                D Cumulative Preferred Stock |   |   | 251,000 |   |
| Series                E Cumulative Preferred Stock |   |   | 304,000 |   |
| TOTAL                                              |   | $      | 777,000 |   |

----

**ITEM      6. EXHIBITS **

| **Exhibit                Number** | **Description**                                                                                                                                                                                    |
|-----------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                                                                                               |
| 4.1                               | Agreement                to Extend Promissory Note dated December 1, 2005 between ATSI                Communications, Inc. and Franklin, Cardwell & Jones,                PC.                  |
|                              |                                                                                                                                                                                               |
| 4.2                               | Secured                Promissory Note and Security Agreement dated November 4, 2005 between                ATSI                Communications, Inc. and CSI Business Finance, Inc.                |
|                              |                                                                                                                                                                                               |
| 10.1                              | Confidential                Settlement Agreement and Mutual release dated October 31, 2005 between                ATSI Communications, Inc. and Telemarketing de Mexico S.A de                C.V. |
|                              |                                                                                                                                                                                               |
| 10.2                              | Stock                Purchase Agreement dated October 15, 2005 between ATSI Communications,                Inc. and Alejandro Sanchez Guzman (Sale of ATSIMex Personal S.A de                C.V.) |
|                              |                                                                                                                                                                                               |
| 10.3                              | Factoring                Agreement dated November 4, 2005 between ATSI Communications, Inc.                and CSI                Business Finance, Inc.                                           |
|                              |                                                                                                                                                                                               |
| 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.        |

----

**SIGNATURE**

|                                   |                                                                                                    |                                               |
|----------------------------------------|---------------------------------------------------------------------------------------------------------|----------------------------------------------------|
|                                   | **ATSI                COMMUNICATIONS, INC**        (Registrant) |
|                              |                                                                                               |                                          |
| Date: April              13, 2006 | By:                                                                                           | /s/ Arthur              L.              Smith |
|                                   | Name:              Arthur L. Smith                                                                      |
|                                   | Title:              President and Chief Executive Officer                                               |

|                                   |                                                                                                             |                                  |
|----------------------------------------|------------------------------------------------------------------------------------------------------------------|---------------------------------------|
|                                   |                                                                                                             |
|                              |                                                                                                        |                             |
| Date: April              13, 2006 | By:                                                                                                    | /s/ Antonio              Estrada |
|                                   | Name:              Antonio Estrada                                                                               |
|                                   | Title:                Corporate Controller (Principal Accounting and                Principal Financial Officer) |

----