SCHEDULE 14A
                                 (RULE 14A-101)

                  INFORMATION REQUIRED IN INFORMATION STATEMENT
                            SCHEDULE 14A INFORMATION

             INFORMATION STATEMENT PURSUANT TO SECTION 14(a) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant [X]

Filed by a party other than the Registrant [ ]

Check the appropriate box:

     [X]  Preliminary Proxy Statement.
     [ ]  Confidential, for Use of the Commission Only (as permitted by Rule
          14a-6(e)(2)).
     [ ]  Definitive Proxy Statement.
     [ ]  Definitive Additional Materials.
     [ ]  Soliciting Material Pursuant to Sec.240.14a-11(c) or Sec.240.14a-12.

                            ATSI COMMUNICATIONS, INC.
                (Name of Registrant as Specified in its Charter)


Payment of Filing Fee (check the appropriate box):

     [X]  No Fee Required.

     [ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
          0-11.
          1)   Title of each class of securities to which transaction applies:
          2)   Aggregate number of securities to which transaction applies:
          3)   Per unit price or other underlying value of transaction computed
               pursuant to Exchange Act Rule 0-11 (Set forth amount on which
               filing fee is calculated and state how it was determined):
          4)   Proposed maximum aggregate value of transaction:
          5)   Total fee paid:

     [ ]  Fee paid previously with preliminary materials.

     [ ]  Check box if any part of the fee is offset as provided by Exchange
          Act Rule 0-11(a)(2) and identify the filing for which the offering fee
          was paid previously. Identify the previous filing by registration
          statement number, or the Form or Schedule and the date of the filing.
          1)   Amount previously paid:
          2)   Form, Schedule or Registration Statement No.:
          3)   Filing Party:
          4)   Date Filed:



                            ATSI COMMUNICATIONS, INC.
                         8600 WURZBACH ROAD, SUITE 700W
                              SAN ANTONIO, TX 78240
                                 (210) 614-7240

Dear Stockholders:

     You are cordially invited to attend the 2004 Annual Meeting of Stockholders
of ATSI Communications, Inc. ("ATSI") that will be held at 10:00 AM (local time)
on  April  27,  2004,  at  the  Conference  Hall  of  the Dr. Burton E. Grossman
International  Conference  Center,  University  of  the  Incarnate  Word,  4301
Broadway,  San  Antonio,  Texas.

     Persons  owning  shares of the Common Stock, $.001 par value per share (the
"Common Stock") or the Series A Convertible Preferred Stock, $.001 par value per
share  (the  "Series  A  Preferred  Stock")  of  record as of March 22, 2004 are
entitled  to  notice  of  and to vote at the Annual Meeting.  At the meeting you
will  be  asked  to  consider  and  vote  upon  the following matters more fully
described  in  the  accompanying  Proxy  Statement:

     PROPOSAL  1.     ELECTION  OF  DIRECTORS.  You will have the opportunity to
     ----------------------------------------
     elect  two members of the Board of Directors for a term of three years. The
     following persons are our nominees for election:

                              Murray R. Nye
                              Richard C. Benkendorf

     PROPOSAL  2.     APPOINTMENT  OF AUDITORS.  You will be asked to ratify the
     -----------------------------------------
     selection  of  Malone  and Bailey, PLLC as our independent auditors for the
     year ending July 31, 2004.

     PROPOSAL  3.     RE-INCORPORATION  IN NEVADA.  You will be asked to approve
     --------------------------------------------
     the  re-incorporation  of  ATSI  in  Nevada by merging ATSI with and into a
     wholly owned subsidiary created for that purpose.

     If  other  business  is  properly  raised  at  the meeting or if we need to
adjourn  the  meeting,  you  will  be asked to vote on these matters, too.  This
Notice and the accompanying Proxy Materials and Proxy were first mailed on March
26,  2004.

     YOUR  VOTE IS IMPORTANT.  WE ASK YOU TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING  PROXY  WHETHER  OR  NOT  YOU  PLAN  TO  ATTEND THE ANNUAL MEETING.
SIGNATURE OF A PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE THE PROXY IF YOU LATER
DECIDE  TO  ATTEND  THE  MEETING  AND VOTE IN PERSON.  IF YOU PLAN TO ATTEND THE
ANNUAL  MEETING  TO VOTE IN PERSON AND YOUR SHARES ARE REGISTERED IN THE NAME OF
YOUR  BROKER,  NOMINEE OR BANK, YOU MUST SECURE A PROXY FROM THE BROKER, NOMINEE
OR BANK ASSIGNING VOTING RIGHTS TO YOU FOR YOUR SHARES.

                                Sincerely,


                                Arthur L. Smith
                                President and Chief Executive Officer




                            ATSI COMMUNICATIONS, INC.
                         8600 WURZBACH ROAD, SUITE 700W
                              SAN ANTONIO, TX 78240
                                 (210) 614-7240
                                _______________

               PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
                        APRIL 27, 2004, AND ADJOURNMENTS
                                _______________

           APPROXIMATE DATE PROXY MATERIAL FIRST SENT TO STOCKHOLDERS:
                                 MARCH 26, 2004
                                _______________

                     SOLICITATION BY THE BOARD OF DIRECTORS

     The  accompanying  proxy,  for  use  only  at  the  2004  Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 AM (local time) on April
27,  2004,  and  any  and all adjournments thereof, is solicited by the Board of
Directors of ATSI Communications, Inc. (the "Company" or "ATSI").  We are making
this  solicitation  by  mail and in person or by telephone through our officers,
directors and regular employees.  We may make arrangements with brokerage houses
or  other  custodians,  nominees and fiduciaries to send proxy material to their
principals.  All  expenses incurred in this solicitation of proxies will be paid
by  the  Company.

                            MATTERS TO BE CONSIDERED

     As of the date of these proxy materials, the Board of Directors is aware of
the following matters that will be considered at the meeting:

     PROPOSAL  1.     ELECTION  OF  DIRECTORS.  You will have the opportunity to
     ----------------------------------------
     elect  two members of the Board of Directors for a term of three years. The
     following  persons  are  our  nominees  for  election:

                              Murray R. Nye
                              Richard C. Benkendorf

     PROPOSAL  2.     APPOINTMENT  OF AUDITORS.  You will be asked to ratify the
     -----------------------------------------
     selection  of  Malone  and Bailey, PLLC as our independent auditors for the
     year  ending  July  31,  2004.

     PROPOSAL  3.     RE-INCORPORATION  IN NEVADA.  You will be asked to approve
     --------------------------------------------
     the  re-incorporation  of  ATSI  in  Nevada by merging ATSI with and into a
     wholly  owned  subsidiary  created  for  that  purpose.

     In  addition,  other  proper  matters relating to the administration of the
meeting  and  matters  of  which  the Board of Directors has no knowledge may be
brought  before  the  meeting  for  a  vote.  The  accompanying  Proxy  grants
discretionary  authority  to  the  proxy  to  vote  on  such  matters.

                                 QUORUM REQUIRED

     Holders  of  Common Stock and Series A Preferred Stock as of March 22, 2004
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As  of  the  Record  Date,  there  were  103,655,190  shares  of  Common  Stock
outstanding,  which  were  held  by  approximately  1,466  holders of record and
approximately  12,941  beneficial owners, and 4,370 shares of Series A Preferred
Stock  held  by  nine  (9)  holders  of  record.  Together, there are a total of
104,306,320 voting interests entitled to vote at the Annual Meeting.  Each share
of  Common  Stock  is entitled to one (1) vote on each matter to come before the
Annual  Meeting  and  one  (1)  vote for each vacancy on the Board of Directors.
Each  share  of Series A Preferred Stock is entitled to 149 votes on each matter
to  come  before  the  Meeting  and  149  votes for each vacancy on the Board of
Directors.  Neither  the  Common  Stock  nor  the  Series  A Preferred Stock are
entitled  to  cumulate  their  votes.

     The  presence  of  the  holders of a majority of the issued and outstanding
voting  interests entitled to vote, either in person or represented by proxy, is
necessary  to  constitute a quorum for the transaction of business at the Annual
Meeting.  Proxies  that withhold authority to vote for a nominee or abstain from
voting  on  any  matter  are  counted  for  the  purpose  of



determining  whether a quorum is present. Broker non-votes, which may occur when
a  broker  or  nominee  has  not  received timely voting instructions on certain
proposals,  are  not  counted for the purpose of determining whether a quorum is
present. If there are not sufficient voting interests represented at the meeting
to  constitute  a  quorum, the meeting may be adjourned until a specified future
date  to  allow  the  solicitation  of  additional  proxies.

                  VOTE REQUIRED FOR ADOPTION OF CERTAIN MATTERS

     Directors are elected by a plurality of the votes cast at the meeting.  The
two  (2) nominees that receive the greatest number of votes will be elected even
though  the  number  of votes received may be less than a majority of the shares
represented  in  person  or  by  proxy  at  the  meeting.  Proxies that withhold
authority  to  vote  for  a  nominee  and  broker non-votes will not prevent the
election  of  such  nominee  if other stockholders vote for such a nominee and a
quorum  is  present.

     The  ratification  of  Malone and Bailey, PLLC as the Company's independent
public  accountants  requires  the  affirmative vote of a majority of the voting
interests  represented  in  person  or  by  proxy  at the meeting.  Proxies that
abstain from voting on this proposal have the same effect as a vote against this
proposal.  Broker  non-votes  will  not  have  any  effect on this proposal if a
quorum  is  present.

     The  approval of the re-incorporation of the Company in Nevada requires the
affirmative  vote  of a majority of the issued and outstanding voting interests,
voting  together  as  a  class,  and  a  majority  of  the  Common Stock, voting
separately  as  a  class.  Proxies that abstain from voting on this proposal and
broker  non-votes  will  have  the  same effect as a vote against this proposal.
Failure  to  return a proxy or to vote your shares at the meeting will also have
the  same  effect  as  a  vote  against  this  proposal.

     Other matters that are properly brought before the meeting will require the
affirmative  vote  of at least a majority of the voting interests represented in
person or by proxy at the meeting.  Certain matters, such as an amendment to the
Articles  of  Incorporation,  may  require a greater number of votes if they are
properly brought before the meeting.  We are not aware of any other matters that
will  be  brought  before  the  meeting  at  the time these Proxy Materials were
mailed.

                REVOCABILITY OF PROXIES; DISCRETIONARY AUTHORITY

     Any stockholder executing a proxy retains the right to revoke it by signing
and  delivering  a proxy bearing a later date, by giving notice of revocation in
writing  to  the  Secretary  of  the Company at any time prior to its use, or by
voting  in person at the meeting.  All properly executed proxies received by the
Company  and  not  revoked  will  be  voted  at  the meeting, or any adjournment
thereof,  in  accordance  with  the  specifications  of  the stockholder.  IF NO
INSTRUCTIONS  ARE  SPECIFIED  ON  THE  PROXY, SHARES REPRESENTED THEREBY WILL BE
VOTED  FOR  THE  ELECTION  OF THE NOMINEES DESCRIBED HEREIN, FOR RATIFICATION OF
MALONE  AND BAILEY, PLLC AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE
CURRENT  FISCAL  YEAR,  AND  FOR  THE RE-INCORPORATION OF THE COMPANY IN NEVADA.
PROXIES  ALSO GRANT DISCRETIONARY PROPER AUTHORITY AS TO APPROVAL OF THE MINUTES
OF THE PRIOR ANNUAL MEETING, MATTERS INCIDENT TO THE CONDUCT OF THE MEETING, AND
MATTERS  PRESENTED  AT THE MEETING OF WHICH THE BOARD OF DIRECTORS HAD NO NOTICE
ON  THE  DATE  HEREOF.

                     VOTING SECURITIES AND OWNERSHIP THEREOF
                   BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  following  table  lists  the  beneficial  ownership  of  shares of the
Company's  Common  Stock  and  Series  A  Preferred Stock by (i) all persons and
groups  known by the Company to own beneficially more than 5% of the outstanding
shares  of  the  Company's  Common  Stock or Series A Preferred Stock, (ii) each
director  and  nominee, (iii) each person who held the office of Chief Executive
Officer  during  the  last fiscal year or at any time during the year ended July
31,  2003, (iv) the four highest compensated executive officers who were serving
as  executive officers on July 31, 2003, (v) each person who would have been one
of  the  four  highest  compensated executive officers but was not serving as an
executive  officer  on  July  31, 2003, and (vi) all directors and officers as a
group.  None  of  the  directors,  nominees or officers of the Company owned any
equity  security  issued  by  the  Company's  subsidiaries other than director's
qualifying  shares.  Information  with  respect to officers, directors and their
families  is  as  of March 22, 2004 and is based on the books and records of the
Company and information obtained from each individual.  Information with respect
to  other  stockholders  is based upon the Schedule 13D or Schedule 13G filed by
such stockholders with the Securities and Exchange Commission.  Unless otherwise
stated,  the  business  address  of  each individual or group is the same as the
address  of  the  Company's  principal  executive  office  and  all  shares  are
beneficially  owned  solely  by  the  person  indicated.


                                      -4-



                                                               SERIES A
NAME OF                           COMMON          PERCENT OF   PREFERRED       PERCENT OF   TOTAL VOTING        PERCENT OF
INDIVIDUAL OR GROUP                STOCK           CLASS(1)      STOCK          CLASS(2)     INTERESTS           TOTAL(3)
-------------------------------  ---------        -----------  ---------       -----------  ------------        -----------
                                                                                     
5% STOCKHOLDERS

Peter Blindt                           -0-                  *        500             11.4%        74,500                  *
30 E. Huron #5407
Chicago, IL 60611

Edward Corcoran                        -0-                  *        500             11.4%        74,500                  *
6006 W. 159th Street
Bldg. C 1-W
Oak Forest, IL 60452

Gerald Corcoran                        -0-                  *        500             11.4%        74,500                  *
11611 90th Avenue
St. John, IN 46373

Joseph Migilio                         -0-                  *      1,005  (4)        23.0%       149,745   (4)            *
13014 Sandburg Ct.
Palos Park, IL 60464

Rocky Dazzo                            -0-                  *        620  (4)        14.2%        92,300   (4)            *
9931 W. Mission Dr.
Palos Park, IL 60464

Jeffrey Tessiatore                     -0-                  *        500             11.4%        74,500                  *
131 Settlers Dr.
Naperville, IL 60565

Albert Vivo                            -0-                  *        500             11.4%        74,500                  *
9830 Circle Parkway
Palos Park, IL 60464

Gary Wright                            -0-                  *        750             17.2%       111,750                  *
3404 Royal Fox Dr.
St. Charles, IL 60174

INDIVIDUAL OFFICERS,
  DIRECTORS AND
  NOMINEES

Arthur L. Smith                  3,488,448   (5)          3.3        -0-                *      3,488,448   (5)          3.3
President, Chief Executive
Officer, Director

Stephen M. Wagner                      -0-                  *        -0-                *            -0-                  *
Former Chief Executive
Officer (6)

Raymond G. Romero                      -0-                  *        -0-                *            -0-                  *
Former Interim Chief Executive
Officer (7)

Ruben R. Caraveo                   200,000   (8)            *        -0-                *        200,000   (8)            *
Vice President, Sales and
Operations

John R. Fleming                    153,334   (9)            *        -0-                *        153,334   (9)            *
Director

Richard C. Benkendorf              320,834  (10)            *        -0-                *        320,834  (10)            *
Director

Murray R. Nye                      455,844  (11)            *        -0-                *        455,844  (11)            *
Director

ALL OFFICERS AND                 4,810,960  (12)          4.6        -0-                *      4,810,960  (12)          4.6
  DIRECTORS AS A GROUP

_______________

     *    Less than 1%


                                      -5-

(1)  Based  on  103,655,190  shares of Common Stock outstanding as of March 22, 2004.  Any shares represented by options
     exercisable within 60 days after March 22, 2004 are treated as being outstanding for the purpose of computing the
     percentage of class for such person but not for any other purpose.
(2)  Based  on  4,370  shares  of  Series  A  Preferred  Stock  outstanding  as  of  March  22,  2004.
(3)  Based  on  104,306,320  voting  interests  outstanding  as  of  March  22, 2004.  Any shares represented by options
     exercisable within 60 days after March 22, 2004 are treated as being outstanding for the purpose of computing the
     percentage of class for such person but not for any other purpose.
(4)  Includes  505  shares  owned  by  a  partnership  in  which  Messrs.  Dazzo  and  Migilio  are  partners.
(5)  Includes  200,000  shares  subject  to  options  exercisable  within  60  days  after  March  22,  2004.
(6)  Resigned  as  of  January  2003.
(7)  Resigned  as  of  May  2003.
(8)  Includes  100,000  shares  subject  to  options  exercisable  within  60  days  after  March  22,  2004.
(9)  Includes  66,666  shares  subject  to  options  exercisable  within  60  days  after  March  22,  2004.
(10) Includes 66,666 shares subject to options exercisable within 60 days after March 22, 2004 and 7,500 shares accrued
     for director fees that have not been issued.
(11) Includes 66,666 shares subject to options exercisable within 60 days after March 22, 2004 and 7,500 shares accrued
     for director fees that have not been issued.
(12) Includes  559,999  shares  subject  to  options  exercisable  within  60  days  after  March  22,  2004.


                               EXECUTIVE OFFICERS

     The  names, ages and positions of all the executive officers of the Company
as  of  January  31, 2004 are listed below.  Except as noted below, each officer
was last elected as an executive officer at the meeting of directors immediately
following  the  last  Annual  Meeting  of  Stockholders  in 2003.  The executive
officers  serve  at  the  pleasure  of  the  Board of Directors.  There exist no
arrangements or understandings between any officer and any other person pursuant
to  which  the  officer  was  elected.



                                                                   OFFICER
     NAME              AGE                POSITION                  SINCE
     ----------------  ---  -------------------------------------  -------
                                                          
     Arthur L. Smith    39  President and Chief Executive Officer     2003
     Ruben R. Caraveo   35  Vice President, Sales and Operations      2003
     Antonio Estrada    29  Corporate Controller                      2003


     Mr. Smith has served as our President and Chief Executive Officer since May
2003.  Mr.  Smith  also  served  as President of ATSI-Mexico from August 2002 to
January 2003, as Chief Executive Officer and a director of the Company from June
1996  to August 2002 and as President of the Company since its formation in June
1996  to July 1998.  Mr. Smith also served as President, Chief Operating Officer
and  a  director  of ATSI-Canada since its formation in May 1994.  From December
1993  until  May  1994,  Mr.  Smith  served  in  the same positions with Latcomm
International  Inc., which company amalgamated with Willingdon Resources Ltd. to
form  ATSI-Canada  in  May  1994.  Mr.  Smith also served as President and Chief
Executive  Officer  of  American  TeleSource  International,  Inc.,  one  of the
Company's  principal  operating subsidiaries, from December 1993 to August 2001.
From  June  1989  to  December  1993,  Mr.  Smith  was  employed  as director of
international  sales  by  GeoComm Partners, a satellite-based telecommunications
company  located  in San Antonio, providing telecommunications services to Latin
America.

     Mr.  Caraveo has served as Vice President of Sales and Operations since May
2003.  Mr.  Caraveo is responsible for Carrier Sales and the delivery of Carrier
Services  for both the U.S. and Mexico.  Mr. Caraveo served as Vice President of
Operations  from  May  2001 to January 2003.  Prior to joining ATSI, Mr. Caraveo
served  as Vice President of Operations and Engineering at Vycera Communications
where  he was responsible for overseeing all daily operations, including network
engineering,  marketing,  and  the  network  trouble  reporting  and  resolution
departments.  His  previous  experience  also  includes  positions with Worldtel
Interactive,  Frontier,  and  WorldCom.  Mr.  Caraveo  has  more  than  14 years
telecommunications  industry  experience,  specializing  in the areas of Network
Engineering,  Data  and  Systems  Analysis,  Product  Marketing,  and  Systems
Development.  Mr.  Caraveo  attended  California  State  University, Northridge,
School  of  Engineering

     Mr.  Estrada  has  served  as  Corporate  Controller  since May 2003.  From
January  2002  through  January  2003,  Mr.  Estrada  served  as  Director  of
International  Accounting and Treasurer.  From January 2001 to January 2002, Mr.
Estrada  served in various roles within ATSI, including International Accounting
Manager  and  general  Accountant.  Prior to joining ATSI in 1999 he served as a
Senior  Accountant  for the Epilepsy Association of San Antonio and South Texas.
Mr.  Estrada  graduated  from  the  University  of  Texas at San Antonio, with a
Bachelors of Business Administration, with a concentration in Accounting.


                                      -6-

                             EXECUTIVE COMPENSATION

Summary  Compensation  Table

     The  following  table  sets  forth  information concerning the compensation
earned  during  the  Company's  last  three  fiscal years by the Company's Chief
Executive  Officer  and each of the Company's other four most highly compensated
executive  officers whose total cash compensation exceeded $100,000 for services
rendered  in  all  capacities  for  the  fiscal  years  ended  July  31,  2003
(collectively,  the  "Named  Executive  Officers").



                                                   ANNUAL COMPENSATION         LONG TERM COMPENSATION
                                              ===============================  =======================

                                                                      OTHER    SECURITIES
                                                                      ANNUAL   UNDERLYING
                                                                     COMPEN-    OPTIONS/
                                        FISCAL   SALARY     BONUS     SATION      SARS         LTIP
NAME AND PRINCIPAL POSITION              YEAR      ($)       ($)       ($)         (#)      PAYOUT ($)
                                                                          

Arthur L. Smith
President and Chief Executive Officer     2003  $  90,808  $ 14,105       (1)      300,000         -0-
                                          2002  $ 174,327  $ 24,004       (1)    1,166,666         -0-
                                          2001  $ 190,000       -0-       -0-          -0-         -0-

Stephen M. Wagner (2)
President and Chief Executive Officer     2003  $  71,154  $ 30,833       (1)          -0-         -0-
                                          2002  $ 174,327       -0-       (1)      500,000         -0-
                                          2001        -0-       -0-       -0-          -0-         -0-

Raymond G. Romero (3)
Interim President and Chief Executive
Officer                                   2003  $  56,923       -0-       (1)          -0-         -0-
                                          2002  $ 137,008       -0-       (1)      150,000         -0-
                                          2001  $ 140,000       -0-       (1)       50,000         -0-

Ruben R. Caraveo
Vice President, Sales and Operations      2003  $  71,154       -0-       (1)      150,000         -0-
                                          2002  $ 110,504       -0-       (1)          -0-         -0-
                                          2001  $  28,308       -0-       (1)      300,000         -0-

_________

     (1)  The  Company has concluded that the aggregate amount of such personal benefits does not exceed
          the lesser of $50,000 or 10% of annual salary and bonus for the Named Executive Officer.
     (2)  Mr.  Wagner  resigned  in  January  2003 and compensation included all compensation during the
          period of employment and severance benefits.
     (3)  Mr.  Romero  resigned in May 2003 and compensation included all compensation during the period
          of employment and severance benefits.


Stock  Option  Plans

     1997  Option  Plan:  The  American TeleSource International Inc. 1997 Stock
     ------------------
Option  Plan  (the "1997 Option Plan") was adopted in February 1997 by the Board
of  Directors  of  the  Company  and  approved  in  May  1997  by  the Company's
stockholders.  The 1997 Option Plan terminated on February 10, 1998.  No further
options  will  be  granted  under the 1997 Option Plan.  All options outstanding
under  the  1997  Option Plan on the date of termination will remain outstanding
under  the  1997  Option  Plan  in  accordance  with  their respective terms and
conditions.  As  of  July  31,  2003,  options  to  purchase  2,000  shares were
outstanding  under  the 1997 Option Plan at a weighted average exercise price of
$.58  per share, all of which were exercisable.  As of July 31, 2003, options to
purchase  a total of 4,463,331 shares had been exercised and options to purchase
451,668  shares  were  forfeited.

     1998  Option  Plan:  The American TeleSource International, Inc. 1998 Stock
     ------------------
Option  Plan (the "1998 Option Plan") was adopted in September 1998 by the Board
of  Directors  of  the  Company  and  approved in December 1998 by the Company's
stockholders.  The  1998  Option  Plan  authorizes  the grant of up to 2,000,000
incentive  stock options and non-qualified stock options to employees, directors
and  certain  other  persons.  The  1998  Option Plan terminated on September 9,
2001.  No  further  options  will  be  granted  under the 1998 Option Plan.  All
options  outstanding  under the 1998 Option Plan on the date of termination will
remain  outstanding  under  the  1998  Option  Plan  in  accordance  with  their
respective  terms  and  conditions.  As  of  July  31, 2003, options to purchase
352,834 shares were outstanding under the 1998 Option Plan at a weighted average
exercise  price  of  $.56  per  share.  As of July 31, 2003, options to purchase
340,334 shares were exercisable, options to purchase 757,254 had been exercised,
and options to purchase 1,104,712 shares had been forfeited.


                                      -7-

     2000  Option  Plan:  The  ATSI  Communications,  Inc.  2000 Incentive Stock
     ------------------
Option  Plan  (the "2000 Option Plan") was adopted in December 2000 by the Board
of  Directors  of  the  Company  and  approved in February 2001 by the Company's
stockholders.  The  2000  Option  Plan authorizes the grant of up to 9.8 million
incentive  stock options and non-qualified stock options to employees, directors
and  certain  other persons.  As of July 31, 2002, the Board had granted options
to  purchase  7,771,499  shares  of  Common  Stock under the 2000 Option Plan at
exercise  prices  from  $.08  per share to $.64 per share.  As of July 31, 2002,
options  to  purchase  1,976,665  shares  were exercisable at a weighted average
exercise  price of $.55 per share.  No options had been exercised and options to
purchase  3,961,500  shares  had  been  forfeited.

Stock Option Grants in Fiscal 2003

     The  following  table  shows  stock  options  granted  to each of the Named
Executive Officers during the year ended July 31, 2003.



                                                                                      POTENTIAL
                                                                                     REALIZABLE
                                                                                       VALUE AT
                                                                                    ASSUMED RATES
                                                                                    OF STOCK PRICE
                                 INDIVIDUAL GRANTS                                   APPRECIATION
===================================================================================  ============

                     NUMBER OF     PERCENT OF TOTAL
                    SECURITIES       OPTIONS/SARS
                    UNDERLYING        GRANTED TO
                   OPTIONS/SARS   EMPLOYEE IN FISCAL   EXERCISE OR BASE  EXPIRATION
NAME                GRANTED (#)          YEAR               PRICE           DATE      5%   10%
                                                                         

Arthur L. Smith          300,000                55.6%
Stephen M. Wagner            -0-                 -0-   N/A               N/A         N/A   N/A
Raymond G. Romero            -0-                 -0-   N/A               N/A         N/A   N/A
Ruben R. Caraveo         150,000                27.8%


Aggregate Option Exercises in Fiscal 2003 and Fiscal Year-End Option Values

     The  following  table  shows stock options exercised by the Named Executive
Officers  during  the  fiscal  year ended July 31, 2003, including the aggregate
value  of  gains  on  the date of exercise.  In addition, the table includes the
number  of  shares  covered  by both exercisable and unexercisable stock options
held  by  each  Named  Executive  Officer  as  of July 31, 2003 and the value of
"in-the-money" options held by such persons as of July 31, 2003.



                                                     NUMBER OF
                    SHARES                           SECURITIES                     VALUE OF
                   ACQUIRED                          UNDERLYING                    UNEXERCISED
                      ON         VALUE               UNEXERCISED                  IN-THE-MONEY
                   EXERCISE   REALIZED ($)           OPTIONS/SARS                 OPTIONS/SARS
NAME                  (#)         (1)                AT 07/31/03                 AT 07/31/03 (2)
                                                                      

                                            Exercisable   Unexercisable    Exercisable  Unexercisable

Arthur L. Smith          -0-          -0-      1,099,999          500,000          -0-            -0-
Stephen M. Wagner        -0-          -0-            -0-              -0-          -0-            -0-
Raymond G. Romero        -0-          -0-            -0-              -0-          -0-            -0-
Ruben R. Caraveo         -0-          -0-        200,000          250,000          -0-            -0-


__________

(1)  The values of the exercised options represent the difference between the closing price of the
     shares underlying the options on the Over-the-Counter market and the exercise price of the options
     on the  date  of  exercise.

(2)  The  values  of  the  unexercised  options are based upon the difference between the exercise
     price  and  the closing price per share on July 31, 2003, as reported on the Over-the-Counter
     market.



                                      -8-

                                PERFORMANCE GRAPH

     The  Common  Stock  has  been registered under Section 12 of the Securities
Exchange  Act  of  1934,  as  amended,  since  October  20, 1997.  The following
Performance Graph compares the cumulative total stockholder return on the Common
Stock  from July 31, 1998 through July 31, 2003 with the cumulative total return
of  the  NASDAQ Market Value Index and the NASDAQ Telecommunications Index.  The
graph  assumes  that  the  value  of the investment in the Common Stock and each
index  was  $100  at  July  31,  1998  and  that  all dividends were reinvested.


                                [GRAPHIC OMITTED]



                      Comparison of Cumulative Total Return
       Among the Company, NASDAQ Index and NASDAQ Telecommunications Index

-------------------------------------------------------------------------------
                     July 31,  July 31,  July 31,  July 31,  July 31,  July 31,
                       1998      1999      2000      2001      2002      2003
-------------------  --------  --------  --------  --------  --------  --------
                                                     
The Company             100.0    144.32    440.34     46.59     10.23      6.70
-------------------  --------  --------  --------  --------  --------  --------
NASDAQ Market Index     100.0    136.68    190.82    107.75     66.68     86.07
-------------------  --------  --------  --------  --------  --------  --------
Telecom Index           100.0     147.7    186.96     65.41     22.53     35.47
-------------------------------------------------------------------------------


     The  foregoing  graph  is  based  on historical data and is not necessarily
indicative  of  future  performance.



                                      -9-

                               PROPOSAL NUMBER 1:
                              ELECTION OF DIRECTORS

     The  business affairs of the Company are managed under the direction of the
Board  of  Directors  consisting  of  seven  (7) persons, divided into three (3)
classes.  Members  of  each  class serve offset terms of three (3) years so that
only  one  class is elected each year.  Class C, consisting of Mr. Fleming and a
vacancy  for  which  no nominee has been named, will continue to serve following
this  Annual  Meeting  of Stockholders for a term that will expire at the Annual
Meeting  of  Stockholders  in  2005.  Class  A,  consisting of Mr. Smith and two
vacancies  for  which  no  nominees  have  been  named,  will  continue to serve
following this Annual Meeting of Stockholders for a term that will expire at the
Annual  Meeting of Stockholders in 2006.  Class B, consisting of Messrs. Nye and
Benkendorf  both  of  whom  have  been  nominated for re-election at this Annual
Meeting  of  Stockholders,  will serve for a term that will expire at the Annual
Meeting  of  Stockholders  in  2007.  THE BOARD OF DIRECTORS RECOMMENDS THAT THE
NOMINEES  LISTED  BELOW  BE  ELECTED  BY  THE  STOCKHOLDERS.  UNLESS  OTHERWISE
SPECIFIED,  ALL  PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY WILL BE VOTED
AT THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF FOR THE ELECTION OF THE PERSONS
WHOSE  NAMES  ARE  LISTED IN THE FOLLOWING TABLE AS NOMINEES FOR DIRECTORS WHOSE
TERM  WILL  EXPIRE  IN  2007.



                          PERSONS NOMINATED FOR DIRECTORS WHOSE TERM WILL EXPIRE IN 2007

                                                                                                          DIRECTOR
                            NAME AND PRINCIPAL OCCUPATION                                            AGE   SINCE
===================================================================================================  ---  --------
                                                                                                    

MURRAY R. NYE  Mr. Nye is a self-employed consultant.  Since 1994 he has served as Chief Executive    50      1996
Officer and a director of ATSI-Canada, a dormant subsidiary.  From December 1993 until May 1994,
Mr. Nye served as Chief Executive Officer and director with Latcomm International Inc., which
amalgamated with Willingdon Resources Ltd. to form ATSI-Canada in May 1994.  From 1992 to 1995,
Mr. Nye served as President of Kirriemuir Oil & Gas Ltd.  Mr. Nye serves as a director of D.M.I.
Technologies, Inc., an Alberta Stock Exchange-traded company.

RICHARD C. BENKENDORF  From 1991 to present, Mr. Benkendorf has been a principal of Technology        65      1996
Impact Partners, which provides advisory and investment services.  From 1989 to 1991, Mr.
Benkendorf served as Senior Vice President Investment, Planning, Mergers & Acquisitions and Venture
Capital for Ameritech, a communications services company.


THE  FOLLOWING  PERSONS HAVE BEEN PREVIOUSLY ELECTED AS DIRECTORS OF THE COMPANY
AND WILL CONTINUE TO SERVE AFTER THE ANNUAL MEETING.



                                        DIRECTORS WHOSE TERM EXPIRES IN 2006

                                                                                                            DIRECTOR
                            NAME AND PRINCIPAL OCCUPATION                                              AGE   SINCE
=====================================================================================================  ---  --------
                                                                                                      

ARTHUR L. SMITH  Mr. Smith has served as our President and Chief Executive Officer since May 2003.      39      2003
Mr. Smith also served as President of ATSI-Mexico from August 2002 to January 2003, as Chief
Executive Officer and a director of the Company from June 1996 to August 2002 and as President of the
Company since its formation in June 1996 to July 1998.  Mr. Smith also served as President, Chief
Operating Officer and a director of ATSI-Canada since its formation in May 1994.  From December 1993
until May 1994, Mr. Smith served in the same positions with Latcomm International Inc., which company
amalgamated with Willingdon Resources Ltd. to form ATSI-Canada in May 1994.  Mr. Smith also served
as President and Chief Executive Officer of American TeleSource International, Inc., one of the
Company's principal operating subsidiaries, from December 1993 to August 2001.  From June 1989 to
December 1993, Mr. Smith was employed as director of international sales by GeoComm Partners, a
satellite-based telecommunications company located in San Antonio, providing telecommunications
services to Latin America.




                                         DIRECTORS WHOSE TERM EXPIRES IN 2005

                                                                                                             DIRECTOR
NAME AND PRINCIPAL OCCUPATION                                                                           AGE   SINCE
======================================================================================================  ---  --------
                                                                                                       

JOHN R. FLEMING  Mr. Fleming is the principal and founder of Vision Corporation, an early-stage          48      2001
investment company that focuses on communications technologies, service and hardware.  Prior to
forming Vision Corporation, Mr. Fleming served as President, International of IXC Communications, Inc.
from April 1998 to December 1999.  Immediately prior to that he served as IXC's President of Emerging
Markets from December 1997, as Executive Vice President of IXC from March 1996 through November
1997 and as Senior Vice President of IXC from October 1994 through March 1996.  He served as Vice
President of Sales and Marketing of IXC from its formation in July 1992 until October 1994.  Prior to
that, Mr. Fleming served as Director of Business Development and Director of Carrier Sales of CTI from
1986 to March 1990 and as Vice President -- Marketing and Sales of CTI from March 1990 to July 1992.
Mr. Fleming was a Branch Manager for Satellite Business Systems from 1983 to 1986.



                                      -10-

Meetings of the Board and Committees

     The  Board  of  Directors of the Company held a total of 28 meetings during
the  fiscal  year  ended  July  31,  2003.  No incumbent director of the Company
during  fiscal  2003 attended fewer than 75% of the aggregate number of meetings
of  the  Board  and all committees on which the director served and which he was
entitled  to  attend.

     The  Board  of  Directors  does not have a separate Nominating Committee or
Compensation  Committee  and  performs  all of the functions of such committees.
The  Audit  Committee  of  the Board of Directors is composed of Messrs. Nye and
Benkendorf.  Pursuant  to  the  written  charter  of  the Audit Committee, it is
responsible  for  the financial reports and other financial information provided
by  the Company to any governmental body or the public; the Company's systems of
internal  controls  regarding  finance,  accounting, legal compliance and ethics
that  management  and the Board of Directors have established; and the Company's
auditing,  accounting  and  financial  reporting processes generally.  The Audit
Committee held [____] meetings during the fiscal year ended July 31, 2003.  Both
Mr.  Nye  and  Mr.  Benkendorf  are  independent  directors  as  defined in Rule
4200(a)(15) of the NASD listing standards and had determined that Mr. Benkendorf
qualifies  as  an  audit  committee  financial expert based on his experience in
financial  matters.

Certain  Relationships  and  Related  Transactions

     We  have  entered  into  a  month-to-month agreement with Technology Impact
Partners, a consulting firm of which Director Richard C. Benkendorf is principal
and  owner.  Under  the  agreement,  Technology Impact Partners provides us with
various  services  that  include  strategic  planning,  business development and
financial  advisory  services.  Under  the  terms  of  the  agreement,  we  were
obligated  to pay the firm $3,750 per month plus expenses.  In November 2000 the
agreement  was  modified and the Company is obligated only to reimburse the firm
for  its  expenses.  At  July  31,  2003, we were obligated to Technology Impact
Partners  for  $79,794.

     In  December  2002,  the  Company entered into a note payable with Director
John  R.  Fleming,  in  the  original  principal  amount  of $25,000 and bearing
interest  at the rate of 7% per annum.  During the year ended July 31, 2003, the
Company  did  not  make  any  payments  on this note.  At July 31, 2003, we were
obligated  to  Mr. Fleming for $35,377 for this note, delinquent directors' fees
and  related  expenses.

Compensation  of  Directors

     Directors  are  reimbursed  their  reasonable  out-of-pocket  expenses  in
connection  with  their  travel  to  and  attendance at meetings of the Board of
Directors.  In  addition,  each  Director  that is not an officer of the Company
receives  $1,250  and 1,500 shares of Common Stock for each meeting of the Board
attended  in  person  and  $250  for  each  meeting  attended  by  telephone.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section  16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers and persons who own more than 10%
of a registered class of the Company's equity securities to file various reports
with  the  Securities  and Exchange Commission concerning their holdings of, and
transactions  in,  securities  of  the Company.  Copies of these filings must be
furnished  to  the  Company.

     Based  solely  on  a  review  of  the copies of such forms furnished to the
Company,  the Company believes that, during the fiscal year ended July 31, 2003,
all of its directors and executive officers timely filed all reports required by
Section  16(a)  of  the  Securities  Exchange  Act.


                                      -11-

                          BOARD AUDIT COMMITTEE REPORT

     The  Audit Committee of the Board of Directors (the "Audit Committee") has:

     1.     Reviewed  and  discussed  the  audited  financial statements for the
     fiscal year ended July 31, 2003 with the management of the Company;

     2.     Discussed  with  the  Company's  Independent  Auditors  the  matters
     required  to  be  discussed by Statement of Accounting Standards No. 61, as
     the  same  was in effect on the date of the Company's financial statements;
     and

     3.     Received  the  written disclosures and the letter from the Company's
     Independent  Auditors required by Independence Standards Board Standard No.
     1  (Independence  Standards  Board Standard No. 1, Independence Discussions
     with  Audit  Committees),  as  the  same  was  in effect on the date of the
     Company's  financial  statements,  and  has  discussed with the Independent
     Auditors  their  independence.

     Based  on  the  foregoing  materials  and  discussions, the Audit Committee
recommended  to the Board of Directors that the audited financial statements for
the  fiscal  year ended July 31, 2003 be included in the Company's Annual Report
on  Form  10-K.

Respectfully submitted,
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

Murray R. Nye
Richard C. Benkendorf



                                      -12-

                               PROPOSAL NUMBER 2:
                          RATIFICATION OF SELECTION OF
                         INDEPENDENT PUBLIC ACCOUNTANTS

     The  Board  of  Directors has selected Malone and Bailey, PLLC. to serve as
independent  public  accountants  of the Company for the fiscal year ending July
31,  2004.  Although  stockholder  ratification  is  not  required, the Board of
Directors has directed that such appointment be submitted to the stockholders of
the  Company for ratification at the Annual Meeting.  A representative of Malone
and Bailey, PLLC will be present at the Annual Meeting, will have an opportunity
to  make  a  statement  if  he or she desires to do so, and will be available to
respond  to  appropriate  questions.

     Tanner  +  Co.  served  as the independent accountants of the Company since
2002.  On  December  9, 2003, the Board of Directors approved the recommendation
of  its  Audit  Committee  that  the  firm  of  Tanner + Co. be dismissed as its
independent  public  accountants and that the firm of Malone and Bailey, PLLC be
engaged as the independent auditors of the Company.  The opinion of Tanner + Co.
for  fiscal 2002 and fiscal 2003 contained a qualification as to the uncertainty
of  the  Company's  ability to continue as a going concern but was not otherwise
qualified  or limited.  During the year ended July 31, 2002 and 2003 and through
the date hereof, there were no disagreements with Tanner + Co. on any matters of
accounting  principle  or  practice, financial statement disclosure, or auditing
scope  or  procedure,  which,  if not resolved to the satisfaction of the former
auditors,  would have been referred to in the auditors' report and there were no
"reportable events" as described in Item 304(a)(1)(v) of Regulation S-K.

     On December 13, 2001, the Board of Directors approved the recommendation of
its  Audit  Committee  that  the firm of Arthur Andersen LLP be dismissed as its
independent  public  accountants  and  that  the  firm  of Ernst & Young, LLP be
engaged  as  the independent auditors of the Company.  On November 14, 2002, the
Company's  Board of Directors approved the recommendation of its Audit Committee
that  the  firm  of  Ernst  &  Young, LLP be dismissed as its independent public
accountants and that the firm of Tanner + Co. be hired as its independent public
accountants  for  the  fiscal  year ending July 31, 2002.  The opinion of Arthur
Andersen  LLP for fiscal 2001 contained a qualification as to the uncertainty of
the  Company's  ability  to  continue  as  a going concern but was not otherwise
qualified  or limited.  During the year ended July 31, 2001 and through the date
hereof,  there  were no disagreements with Arthur Andersen LLP or Ernst & Young,
LLP  on  any  matters  of  accounting principle or practice, financial statement
disclosure,  or  auditing  scope  or  procedure,  which,  if not resolved to the
satisfaction  of  the  former  auditors,  would  have  been  referred  to in the
auditors'  report  and  there  were  no "reportable events" as described in Item
304(a)(1)(v)  of  Regulation  S-K.

     The  Company  did  not  consult Malone and Bailey, PLLC with respect to the
application  of  accounting  principles  to a specified transaction, proposed or
completed,  or the type of audit opinion that might be rendered on the Company's
financial statements, or any other matters or reportable events pursuant to Item
304(a)(1)(v)  of  Regulation  S-K.

     The  Company  paid  the  following  fees  to  its  principal  independent
accountants  for  services  during the fiscal years ended July 31, 2002 and July
31,  2003,  which  the  Audit  Committee  has  determined  are  compatible  with
maintaining the independence of Tanner + Co.



                                                        YEAR ENDED JULY 31,
          DESCRIPTION OF FEES                           2002           2003
                                                           

          Audit Fees                                    $95,000       $35,000
          Audit Related Fees                                -0-           -0-
          Tax Fees                                          -0-           -0-
          All Other Fees                                    -0-           -0-


     The Audit Committee has instructed Malone and Bailey PLLC that any fees for
non-audit  services  must  be  approved  before  being  incurred.

     THE  BOARD  OF  DIRECTORS  RECOMMENDS  THAT  THE  APPOINTMENT OF MALONE AND
BAILEY,  PLLC  AS  INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY FOR THE FISCAL
YEAR  ENDING  JULY  31,  2004 BE RATIFIED BY THE STOCKHOLDERS.  UNLESS OTHERWISE
INDICATED,  ALL  PROPERLY EXECUTED PROXIES RECEIVED BY THE COMPANY WILL BE VOTED
FOR  SUCH  RATIFICATION  AT  THE ANNUAL MEETING OR ANY ADJOURNMENT THEREOF.  The
ratification of Malone and Bailey, PLLC as the independent public accountants of
the  Company  will  not  be  binding  on the Company and the Audit Committee may
select a new firm to act as the independent public accountants of the Company at
any time in their discretion.  An adverse vote will be considered a direction to
the  Audit  Committee  to  select  other  independent  public accountants in the
following  year.


                                      -13-



                                           PROPOSAL NUMBER 3:
                                       RE-INCORPORATION IN NEVADA

                                                 SUMMARY

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

           
TRANSACTION:  Re-incorporation in Nevada

PURPOSE:      To provide greater flexibility and simplicity in corporate transactions, reduce taxes and
              other costs of doing business, reduce the number of shares of Common Stock outstanding,
              and reduce the amount of short sales of our Common Stock.  See "Principal Reasons for
              Re-incorporation"

METHOD:       Merger of ATSI Communications, Inc. with and into our wholly owned Nevada
              subsidiary, ATSI Merger Corporation.  See "Principal Features of the Re-incorporation"

EXCHANGE      One share of ATSI Merger Corporation Common Stock and ten (10) shares of ATSI
RATIOS:       Merger Corporation Series H Convertible Preferred Stock will be issued for each 100
              shares of ATSI Communications, Inc. Common Stock held as of the Effective Date.  Any
              fractional shares of ATSI Merger Corporation Common Stock or Series H Convertible
              Preferred Stock will be rounded up to the nearest whole share.  See "Principal Features of
              the Re-incorporation"

              One share of ATSI Merger Corporation Preferred Stock, with substantially similar rights,
              preferences, limitations and designations, will be issued for each share of ATSI
              Communications, Inc. Preferred Stock outstanding as of the effective date.  See
              "Principal Features of the Re-incorporation"

EFFECTIVE     May 17, 2004, subject to approval by the ATSI Communications, Inc. stockholders.
DATE:

ADDITIONAL    Mandatory exchange of outstanding certificates representing shares of ATSI
PROVISIONS:   Communications, Inc. Common Stock for certificates representing shares of ATSI
              Merger Corporation Common Stock and ATSI Merger Corporation Series H Convertible
              Preferred Stock.  See "How to Exchange Old ATSI Certificates for New ATSI
              Certificates"

TAXATION:     We believe that the merger of ATSI Communications, Inc. with and into ATSI Merger
              Corporation will not be a taxable transaction.  See "Taxation of Re-incorporation"

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


THE  BOARD  OF DIRECTORS RECOMMENDS THAT THE MERGER WITH ATSI MERGER CORPORATION
BE  APPROVED  BY  THE  STOCKHOLDERS.  UNLESS  OTHERWISE  INDICATED, ALL PROPERLY
EXECUTED  PROXIES RECEIVED BY THE COMPANY WILL BE VOTED FOR SUCH APPROVAL AT THE
ANNUAL  MEETING  OR  ANY  ADJOURNMENT  THEREOF.

     The following discussion does not include all of the provisions of the Plan
and  Agreement  of  Merger  between  the  Company  ("Old  ATSI")  and its Nevada
subsidiary,  ATSI  Merger  Corporation ("New ATSI"), a copy of which is attached
hereto  as  Exhibit  "A,"  the  Articles of Incorporation of New ATSI, a copy of
which  is  attached  hereto  as  Exhibit  "B," and a description of the Series H
Preferred  Stock,  a copy of which is attached hereto as Exhibit "C."  Copies of
the  Certificate  of  Incorporation and the bylaws of Old ATSI and the bylaws of
New  ATSI  are available for inspection at our principal office and we will send
copies  to  stockholders  upon  request.

Principal  Reasons  for  Re-incorporation

     We  believe  that  the  re-incorporation  in  Nevada will provide a greater
measure  of flexibility and simplicity in corporate governance than is available
under Delaware law, save taxes and other expenses, provide additional authorized
and  unissued  shares  of  Common  Stock,  and increase the marketability of our
securities.


                                      -14-

     Nevada  has  adopted a modern code governing the formation and operation of
corporations.  It  includes by statute many of the concepts developed judicially
in  Delaware.  In  addition,  the Nevada law provides for greater flexibility in
raising  capital  and  other  corporate  transactions  and limits the ability of
controlling  stockholders  to  engage  in  certain transactions. The merger will
result in these provisions being applicable to Old ATSI. Also as a result of the
merger, New ATSI will have a greater number of authorized and unissued shares of
Common  Stock  that  can  be  issued  to  raise capital, compensate employees or
consultants  or  for  other  corporate  purposes.

     Nevada imposes no franchise taxes or corporate income taxes on corporations
that  are incorporated in Nevada, which will result in an immediate savings.  We
also  believe  that  the  cost of doing business as a Nevada corporation will be
less  because  there  are  fewer reports that must be filed with agencies of the
State of Nevada and the costs of litigation and other legal processes is less in
Nevada.

     As  of  the  Record  Date  there  are  103,655,190  shares  of Common Stock
outstanding.  The large number of shares outstanding makes administration of the
share  transfer  records  expensive  and  overly  complicated for a Company with
limited market capitalization.  One of the features of the re-incorporation will
be a conversion of 100 shares of Old ATSI Common Stock into one (1) share of New
ATSI  Common  Stock  which  will  make  it  more economical to maintain transfer
records and make transactions in shares of New ATSI more economical.

     We believe that the price of our Common Stock may be artificially depressed
due  to  abnormally  high short-selling by speculators who are not stockholders.
We believe that these sales are conducted through a practice commonly known as a
"naked  short" sale.  Certain brokers may have permitted their customers to sell
shares  that  are  neither  owned  by  such  customers nor borrowed from another
stockholder.  As  a  result, the broker has not delivered the shares sold to the
purchasers.  If  this  practice is widespread, it creates severe pressure on the
price  of  our  stock  since  there is no limit on the number of shares that are
traded.  The  re-incorporation  in Nevada will permit us to require the delivery
of  certificates  representing  our  shares  for exchange in connection with the
re-incorporation  or  subsequent  changes  in our capital structure.  We believe
that  the  practice  of naked short sales, and the depression of our stock price
which it has caused, will be discouraged as a result of the merger.

     We  have been advised by our counsel in certain litigation filed by us that
reincorporation  in  Nevada  would  be  beneficial  to  the  Company  and  its
stockholders.

Principal  Features  of  the  Re-incorporation

     The  re-incorporation  will  be effected by the merger of Old ATSI with and
into  our  wholly  owned  subsidiary,  New ATSI.  New ATSI will be the surviving
entity.  The  re-incorporation  will be effective as soon as reasonably possible
after  the  approval  of the Plan and Agreement of Merger at the Annual Meeting.

     On the Effective Date (i) each of our stockholders as of the Effective Date
will  become entitled to receive one share of New ATSI Common Stock and ten (10)
shares  of  New ATSI Series H Convertible Preferred Stock for each 100 shares of
Old ATSI Common Stock surrendered, (ii) any fractional shares of New ATSI Common
Stock  or  New  ATSI  Preferred  Stock that would result from the merger will be
rounded up to the nearest whole share, (iii) each of the owners of any series of
our Preferred Stock will be entitled to receive an equal number of shares of the
New  ATSI Preferred Stock having identical designations, rights and preferences,
(iv)  each  share of New ATSI Common Stock owned by Old ATSI prior to the merger
will  be canceled and will resume the status of authorized and unissued New ATSI
Common  Stock,  (v)  Old ATSI will cease its corporate existence in the State of
Delaware,  and  (vi) Old ATSI will cease to trade on the Over-the-Counter market
under  the  symbol "ATSC" and New ATSI will begin trading under a new symbol and
CUSIP  to  be  assigned.

     The  Articles  of  Incorporation  and  bylaws of New ATSI are substantially
identical  to  the  Certificate of Incorporation and bylaws of Old ATSI.  Except
for  the differences between the laws of the State of Delaware, which govern Old
ATSI, and the laws of the State of Nevada, which govern New ATSI, your rights as
stockholders  will  not  be  affected  by the merger.  See the information under
"Significant  Differences  between  Old  ATSI and New ATSI" for a summary of the
differences  between the laws of the State of Delaware and the laws of the State
of  Nevada.

     The Board of Directors and officers of New ATSI will consist of the persons
who  are  our  directors  and  officers prior to the merger.  Our daily business
operations  will  continue  at  the principal executive offices at the locations
operated  by  Old  ATSI.


                                      -15-

Capitalization

     The merger will not affect stockholders' equity but will result in a change
to the number and description of the shares of capital stock outstanding and the
number of shares of Common Stock that are authorized and unissued.

     The authorized capital of Old ATSI consists of 200,000,000 shares of Common
Stock,  $.001  par  value,  and  10,000,000 shares of Preferred Stock, $.001 par
value.  As  of  March 22, 2004, there were 103,655,190 shares of Old ATSI Common
Stock  and  20,042 shares of Old ATSI Preferred Stock outstanding.  In addition,
there were 8,673,659 shares of Old ATSI Common Stock reserved for issuance under
outstanding warrants and options.  The remaining 87,671,151 authorized shares of
Common  Stock  are  not sufficient to cover the number of shares of Common Stock
issuable  upon  conversion of all outstanding securities convertible into Common
Stock.  As  a  result,  no shares of Common Stock were available for issuance by
the  Board  of  Directors  to  raise  capital  for  operations,  compensation of
employees  or  other  corporate  purposes.

     The  authorized  capital  of  New  ATSI  consists  of 200,000,000 shares of
capital  stock  divided into 150,000,000 shares of Common Stock, $.001 par value
per  share, and 50,000,000 shares of Preferred Stock, $.001 par value per share.
The  Board  of  Directors  of  New  ATSI  has  adopted  designations, rights and
preferences  for  Preferred  Stock  which  are  identical  to  the  rights  and
preferences  of  the Preferred Stock issued by Old ATSI.  In addition, the Board
of  Directors  of  New  ATSI  has adopted rights and preferences of the Series H
Convertible Preferred Stock (the "Series H Preferred Stock") that will be issued
as  a result of the merger.  See "Description of Capital Stock of New ATSI".  As
a result of the merger and mandatory exchange of the Common Stock, New ATSI will
have  outstanding  approximately 1,036,551 shares of Common Stock, 20,042 shares
of  Preferred  Stock  on  terms  identical to the outstanding shares of Old ATSI
Preferred  Stock,  and  10,355,000  shares  of  Series  H  Preferred  Stock.  In
addition,  New  ATSI has reserved 17,090,630 shares of Common Stock for issuance
under  outstanding  warrants,  options  and  securities  convertible into Common
Stock.  Accordingly,  the  Board  of  Directors  of New ATSI will have available
approximately  132,872,000  shares  of  Common  Stock  and,  500,000  shares  of
Preferred Stock which are authorized but presently unissued and unreserved.

Description  of  Capital  Stock  of  New  ATSI

     Shares  of New ATSI Common Stock will have one vote for each share and will
otherwise  be  identical  to  the  shares  of  Old ATSI Common Stock.  Since all
stockholders  of Old ATSI will receive at least one (1) share of New ATSI Common
Stock  there  will  not  be  any  change  in  the number of stockholders and all
stockholders  will own the same percentage ownership in New ATSI that they owned
in Old ATSI, subject to minor changes as a result of rounding.

     Each owner of Old ATSI Common Stock on the Effective Date will also receive
at  least one (1) share of New ATSI Series H Preferred Stock.  Each share of the
Series  H  Preferred  Stock  may be redeemed by New ATSI at any time for one (1)
share  of New ATSI Common Stock, may be converted at the option of the holder to
one  and  one-fifth  (1.2) share of New ATSI Common Stock after one (1) year and
may  be converted at the option of the holder to one and one-half (1.5) share of
New  ATSI  Common  Stock after two (2) years.  The Series H Preferred Stock does
not  vote  on  any  matters  (except  as  required by Nevada law with respect to
changes  in  the rights of the Series H Preferred Stock) and shares equally with
the shares of New ATSI Common Stock in distributions of dividends or liquidation
amounts  as  though  the  Series  H Preferred Stock had been converted to Common
Stock.

Significant Differences Between the Old ATSI and New ATSI

     Old  ATSI  is  incorporated under the laws of the State of Delaware and New
ATSI  is incorporated under the laws of the State of Nevada.  Those stockholders
that  tender  their certificates representing the shares of our Common Stock for
exchange  will  become  stockholders  of New ATSI.  Their rights as stockholders
will  be  governed by the Nevada Business Corporation Act ("Nevada law") and the
Articles  of  Incorporation  and  bylaws  of  New  ATSI rather than the Delaware
General  Corporation  Law  ("Delaware  law")  and  the  Old  ATSI Certificate of
Incorporation  and  bylaws.

     The  corporate  statutes  of  Nevada and Delaware have certain differences,
summarized below.  This summary is not intended to be complete, and is qualified
by  reference  to the full text of, and decisions interpreting, Delaware law and
Nevada  law.

     Classified  Board  of  Directors.  Both  Delaware  and  Nevada  law  permit
     --------------------------------
corporations  to  classify their Board of Directors so that less than all of the
directors  are  elected  each  year to overlapping terms.  Both Old ATSI and New
ATSI  have  classified boards consisting of three classes, elected to three-year
terms.  As  a  result  of the merger, our directors will become directors of New
ATSI with terms expiring at the same time as the terms to which they are elected
for  Old  ATSI.


                                      -16-

     Removal of Directors.  Under Delaware law, members of a classified Board of
     --------------------
Directors  may  only  be  removed  for  cause.  Removal  requires  the vote of a
majority  of  the  outstanding  shares  entitled  to  vote  for  the election of
directors.  In  addition,  the Certificate of Incorporation of Old ATSI requires
the  vote  of  two-thirds  (2/3) of the voting interests entitled to vote on the
election of the Directors to remove a Director.  Nevada law provides that any or
all  directors  may  be  removed  by  the vote of two-thirds (2/3) of the voting
interests  entitled  to  vote  for  the  election  of  directors  but  does  not
distinguish between removal of directors with and without cause.  The merger may
make  it easier for the stockholders of New ATSI to remove a member of the Board
of  Directors.

     Special Meetings of Stockholders.  Delaware law permits special meetings of
     --------------------------------
stockholders  to  be  called  by  the  Board of Directors or by any other person
authorized  in  the  certificate  of  incorporation  or bylaws to call a special
stockholder meeting.  The Certificate of Incorporation of Old ATSI provides that
only  the  President  of the Company or a majority of the Board of Directors may
call  a  special  meeting  of the stockholders.  Nevada law does not address the
manner  in  which  special  meetings  of  stockholders may be called but permits
corporations  to  determine  the  manner  in  which meetings are called in their
bylaws.  The  Articles  of  Incorporation  and  bylaws  of New ATSI provide that
special  meetings  of  the  stockholders  may  be  called  only  by the Board of
Directors  or  a committee of the Board of Directors that is delegated the power
to  call special meetings by the Board of Directors.  The merger will not have a
significant effect on the ability of the stockholders to call a special meeting.

     Special  Meetings  Pursuant  to  Petition  of  Stockholders.  Delaware  law
     -----------------------------------------------------------
provides  that  a  director  or  a stockholder of a corporation may apply to the
Court  of  Chancery of the State of Delaware if the corporation fails to hold an
annual  meeting  for the election of directors or there is no written consent to
elect  directors  in lieu of an annual meeting taken, in both cases for a period
of thirty (30) days after the date designated for the annual meeting or if there
is  no  such  date  designated,  within 13 months after the last annual meeting.
Nevada  law  is more restrictive.  Under Nevada law stockholders having not less
than  15%  of  the  voting  interest  may petition the district court to order a
meeting  for  the election of directors if a corporation fails to call a meeting
for that purpose within 18 months after the last meeting at which directors were
elected.  The merger may make it more difficult for the stockholders of New ATSI
to  require  that  an annual meeting be held without the consent of the Board of
Directors.

     Cumulative  Voting.  Cumulative  voting for directors entitles stockholders
     ------------------
to  cast  a  number  of  votes that is equal to the number of voting shares held
multiplied  by the number of directors to be elected.  Stockholders may cast all
such  votes  either for one nominee or distribute such votes among up to as many
candidates  as there are positions to be filled.  Cumulative voting may enable a
minority  stockholder  or  group  of  stockholders  to  elect  at  least  one
representative  to  the  Board  of  Directors  where such stockholders would not
otherwise  be  able to elect any directors.  Both Delaware and Nevada law permit
cumulative  voting  if  provided  for  in  the  certificate  or  articles  of
incorporation  and pursuant to specified procedures.  Neither the Certificate of
Incorporation  of Old ATSI nor the Articles of Incorporation of New ATSI provide
for  cumulative  voting.  The  merger  does  not  change  the  rights  of  the
stockholders  to  cumulate  their  votes.

     Vacancies.  Under  Delaware law and the Certificate of Incorporation of Old
     ---------
ATSI,  vacancies on the Board of Directors may be filled by the affirmative vote
of  a  majority  of  the remaining directors then in office, even if less than a
quorum.  Any  director  so  appointed  will hold office for the remainder of the
full  term  of the class of directors in which the vacancy occurred.  Similarly,
Nevada  law provides that vacancies may be filled by a majority of the remaining
directors,  though  less  than  a  quorum,  unless the articles of incorporation
provide  otherwise.  The  bylaws  of New ATSI address the election of persons to
fill  vacancies  on  the  Board  of  Directors  in  the  same  manner.

     Indemnification  of  Officers  and  Directors  and Advancement of Expenses.
     --------------------------------------------------------------------------
Delaware  and  Nevada  have  substantially  similar  provisions  regarding
indemnification  by  a  corporation  of  its  officers, directors, employees and
agents.  Delaware  and  Nevada law differ in their provisions for advancement of
expenses  incurred  by  an  officer or director in defending a civil or criminal
action,  suit or proceeding.  Delaware law provides that expenses incurred by an
officer  or  director  in  defending  any  civil,  criminal,  administrative  or
investigative  action,  suit  or  proceeding  may  be paid by the corporation in
advance  of the final disposition of the action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if  it is ultimately determined that he or she is not entitled to be indemnified
by the corporation.  A Delaware corporation has the discretion to decide whether
or  not  to  advance expenses, unless its certificate of incorporation or bylaws
provides for mandatory advancement.  Nevada law differs in two respects:  first,
Nevada  law  applies  to  advance  of  expenses  incurred  by  both officers and
directors,  and  second, under Nevada law, the articles of incorporation, bylaws
or  an  agreement  made by the corporation may provide that the corporation must
pay  advancements of expenses in advance of the final disposition of the action,
suit  or  proceedings  upon  receipt  of  an  undertaking by or on behalf of the
director  or  officer to repay the amount if it is ultimately determined that he
or  she  is not entitled to be indemnified by the corporation.  There will be no
difference in stockholders' rights with respect to this issue because the bylaws
of  Old ATSI and New ATSI each provide for the mandatory advancement of expenses
of  directors  and  officers.


                                      -17-

     Limitation  on  Personal  Liability  of  Directors.  Delaware law permits a
     --------------------------------------------------
corporation  to  adopt  provisions  limiting  or  eliminating the liability of a
director  to  a  company and its stockholders for monetary damages for breach of
fiduciary  duty  as a director, provided that such liability does not arise from
certain  proscribed  conduct,  including  breach of the duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation  of law or liability to the corporation based on unlawful dividends or
distributions  or improper personal benefit. The Certificate of Incorporation of
Old  ATSI  excluded director liability to the maximum extent allowed by Delaware
law.  Nevada  law  permits,  and  New  ATSI  has adopted, a broader exclusion of
liability of directors to the corporation and its stockholders, providing for an
exclusion of all monetary damages for breach of fiduciary duty unless they arise
from  act  or omissions which involve intentional misconduct, fraud or a knowing
violation  of  law  or  payments  of dividends or distributions in excess of the
amount  allowed. The merger will result in the elimination of any liability of a
director  for  a  breach  of the duty of loyalty unless arising from intentional
misconduct,  fraud,  or  a  knowing  violation  of  law.

     Dividends.  Delaware  law  is more restrictive than Nevada law with respect
     ---------
to  when  dividends  may  be  paid.  Under  the  Delaware  law,  unless  further
restricted  in  the  certificate of incorporation, a corporation may declare and
pay  dividends,  out of surplus, or if no surplus exists, out of net profits for
the  fiscal  year  in which the dividend is declared and/or the preceding fiscal
year  (provided  that  the amount of capital of the corporation is not less than
the  aggregate  amount  of the capital represented by the issued and outstanding
stock  of  all classes having a preference upon the distribution of assets).  In
addition,  Delaware law provides that a corporation may redeem or repurchase its
shares  only  if  the  capital  of  the  corporation  is  not  impaired and such
redemption  or  repurchase  would  not  impair  the  capital of the corporation.
Nevada  law provides that no distribution (including dividends on, or redemption
or  repurchases of, shares of capital stock) may be made if, after giving effect
to such distribution, the corporation would not be able to pay its debts as they
become due in the usual course of business, or, except as specifically permitted
by  the  articles of incorporation, the corporation's total assets would be less
than  the  sum  of its total liabilities plus the amount that would be needed at
the  time  of  a  dissolution  to  satisfy  the preferential rights of preferred
stockholders.  The  merger  makes  it  possible for New ATSI to pay dividends or
other  distributions  that  would  not  be  payable  under  Delaware  law.

     Restrictions  on  Business  Combinations.  Both  Delaware  and  Nevada  law
     ----------------------------------------
contain  provisions  restricting  the  ability  of  a  corporation  to engage in
business  combinations  with  an  interested stockholder.  Under Delaware law, a
corporation  which  is  listed  on  a national securities exchange, included for
quotation  on  the  Nasdaq  Stock  Market  or  held of record by more than 2,000
stockholders,  is  not  permitted  to  engage in a business combination with any
interested  stockholder  for  a  three-year  period  following  the  time  such
stockholder  became  an  interested  stockholder  unless  (i)  the  transaction
resulting  in  a  person  becoming  an  interested  stockholder, or the business
combination, is approved by the Board of Directors of the corporation before the
person  becomes  an  interested  stockholder;  (ii)  the  interested stockholder
acquires  85%  or more of the outstanding voting stock of the corporation in the
same transaction that makes it an interested stockholder (excluding shares owned
by  persons  who  are both officers and directors of the corporation, and shares
held  by  certain employee stock ownership plans); or (iii) on or after the date
the  person  becomes  an  interested  stockholder,  the  business combination is
approved  by the corporation's Board of Directors and by the holders of at least
66-2/3%  of  the  corporation's outstanding voting stock at an annual or special
meeting  (and  not by written consent), excluding shares owned by the interested
stockholder.  Delaware  law  defines  "interested  stockholder"  generally  as a
person  who owns 15% or more of the outstanding shares of a corporation's voting
stock.

     Nevada  law  regulates  business  combinations more stringently.  First, an
"interested  stockholder"  is  defined  as  a  beneficial  owner  (directly  or
indirectly)  of ten percent (10%) or more of the voting power of the outstanding
shares of the corporation.  Second, the three-year moratorium can be lifted only
by  advance  approval by a corporation's Board of Directors.  Finally, after the
three-year period, combinations with "interested stockholders" remain prohibited
unless  (i)  they  are  approved  by  the  Board of Directors, the disinterested
stockholders  or  a  majority  of  the outstanding voting power not beneficially
owned  by  the  interested  party,  or  (ii) the interested stockholders satisfy
certain  fair  value  requirements.  As  in  Delaware,  a Nevada corporation may
opt-out  of  the  statute  with  appropriate  provisions  in  its  articles  of
incorporation.

     Neither the Old ATSI nor New ATSI have opted out of the applicable statutes
and  the  more  stringent  requirements  of  Nevada  law  apply  to  mergers and
combinations  after  the  Effective  Date  of  the  merger.

     Limitations  on  Controlling Stockholders.  Nevada law contains a provision
     -----------------------------------------
that  limits  the  voting  rights of a person that acquires or makes an offer to
acquire a controlling interest in a Nevada corporation.  Under the provisions of
Nevada  law,  a  person acquiring or making an offer to acquire more than 20% of
the  voting  power  in  a  corporation  will have only such voting rights as are
granted  by  a  resolution  of  the  stockholders adopted at a special or annual
meeting.  The  controlling  person  is  not  entitled  to vote on the resolution
granting  voting  rights  to  the  controlling interest.  The person acquiring a
controlling  interest  may  request  a meeting of the stockholders be called for
this  purpose  and,  if  the  Board  of  Directors  fails  to  call  the


                                      -18-

meeting  or  the  controlling  person  is  not  accorded full voting rights, the
corporation  must  redeem  the  controlling shares at the average price paid for
them. Delaware does not have a similar provision and the merger may make it more
difficult  for  a person to acquire control of New ATSI through acquisition of a
majority  of  the  shares  issued.

     Amendment  to  Articles  of  Incorporation/Certificate  of Incorporation or
     ---------------------------------------------------------------------------
Bylaws.  Both  Delaware  and Nevada law require the approval of the holders of a
------
majority  of  all  outstanding  shares  entitled  to  vote  to  approve proposed
amendments  to  a  corporation's  certificate or articles of incorporation.  The
Certificate  of  Incorporation  of  Old ATSI requires 66-2/3% of the outstanding
voting  interests  to  approve  certain  amendments  relating to the election of
Directors,  meetings  of  stockholders,  exclusion  of  director  liability, and
indemnity  of  officers  and  directors.  The  merger may make it easier for the
stockholders to amend the Articles of Incorporation of New ATSI.

     Issuance  of  Preferred  Stock; Increase in Shares.  Neither state requires
     --------------------------------------------------
stockholder  approval  for  the  Board  of Directors of a corporation to fix the
voting powers, designation, preferences, limitations, restrictions and rights of
a  class of stock provided that the corporation's organizational documents grant
such  power  to its Board of Directors.  Both Delaware and Nevada law permit the
number  of  authorized  shares  of  any  such  class of stock to be increased or
decreased  (but not below the number of shares then outstanding) by the Board of
Directors  unless  otherwise  provided  in  the  articles  or  certificate  of
incorporation  or  resolution adopted pursuant to the articles or certificate of
incorporation,  respectively.

     Actions  by  Written Consent of Stockholders.  Both Delaware and Nevada law
     --------------------------------------------
provide  that,  unless  the  articles  or  certificate of incorporation provides
otherwise,  any  action  required  or  permitted to be taken at a meeting of the
stockholders  may be taken without a meeting if the holders of outstanding stock
having at least the minimum number of votes that would be necessary to authorize
or  take  such action at a meeting at which all shares entitled to vote consents
to  the action in writing.  Delaware law requires the corporation to give prompt
notice  of  the  taking  of  corporate  action  without  a  meeting by less than
unanimous  written consent to those stockholders who did not consent in writing.
Although  not required by Nevada law, New ATSI's bylaws require prompt notice to
all  stockholders  of  any  action taken by less than unanimous written consent.

     Stockholder  Vote  for Mergers and Other Corporation Reorganizations.  Both
     --------------------------------------------------------------------
jurisdictions  require  authorization by an absolute majority of the outstanding
voting  rights, as well as approval by the Board of Directors, of the terms of a
merger or a sale of substantially all of the assets of the corporation.  Neither
Delaware  nor Nevada law require a stockholder vote of the surviving corporation
in  a  merger  (unless  the corporation provides otherwise in its certificate of
incorporation)  if:  (a)  the  merger  agreement  does  not  amend  the existing
certificate  of  incorporation  of  the surviving corporation; (b) each share of
stock  of the surviving corporation outstanding immediately before the effective
date  of  the merger is an identical outstanding share after the merger; and (c)
either  no  shares  of  common stock of the surviving corporation and no shares,
securities  or  obligations  convertible  into  such  stock  are to be issued or
delivered  under the plan of merger, or the authorized unissued shares or shares
of common stock of the surviving corporation to be issued or delivered under the
plan  of  merger  plus  those  initially  issuable  upon conversion of any other
shares,  securities  or obligations to be issued or delivered under such plan do
not  exceed  twenty  percent  (20%)  of  the  shares  of  common  stock  of such
constituent  corporation  outstanding immediately prior to the effective date of
the  merger.

Defenses  Against  Hostile  Takeovers

     The  following discussion summarizes the reasons for, and the operation and
effects  of,  certain provisions in the New ATSI Articles of Incorporation which
management  has identified as potentially having an anti-takeover effect.  It is
not  intended  to  be  a  complete  description  of  all potential anti-takeover
effects,  and  it  is  qualified  in  its  entirety by reference to the New ATSI
Articles  of  Incorporation  and  bylaws.  Substantially similar provisions were
contained in the Old ATSI Certificate of Incorporation and bylaws and the merger
does not change the nature of the anti-takeover provisions or their effect.

     The  anti-takeover provisions of the New ATSI Articles of Incorporation are
designed  to  minimize the possibility of a sudden acquisition of control of New
ATSI  without approval by the New ATSI Board of Directors.  These provisions may
tend  to  make  it  more  difficult for the stockholders to remove the incumbent
members  of  the Board of Directors or force other corporate changes without the
approval  of  the  Board  of  Directors.  The  provisions  would not prohibit an
acquisition  of  control  of  New  ATSI or a tender offer for all of its capital
stock  but  may  have the effect of discouraging or preventing an acquisition or
tender  offer  which  might  be  viewed  by  stockholders  to  be  in their best
interests.

     Authorized Shares of Capital Stock.  The New ATSI Articles of Incorporation
     ----------------------------------
authorizes  the  issuance  of up to 150,000,000 shares of Common Stock, of which
only  approximately  17,128,000 will be issued or reserved immediately following
the merger.  Shares of authorized and unissued Common Stock could be issued to a
person  that is friendly to the Board of Directors for the purpose of preventing
an  attempted  takeover  without  approval  of  the  stockholders  of  New ATSI.
Moreover,  the  existence of a large number of authorized and unissued shares of
capital  stock may deter or discourage a


                                      -19-

potential  acquirer  from  making  an offer without the approval of the Board of
Directors.  The  Board  of Directors believes that it is advisable to maintain a
significant  number  of  authorized and unissued shares of capital stock so that
the Company can take advantage of potential acquisitions and other opportunities
without  the  delay inherent in authorization of such shares by the stockholders
for  each  opportunity.

     Authorized  Shares  of  Preferred  Stock.  The  New  ATSI  Articles  of
     ----------------------------------------
Incorporation  authorizes  the  issuance  of  up  to 50,000,000 shares of serial
Preferred  Stock, without any action on the part of the stockholders.  Shares of
New  ATSI's  serial Preferred Stock with voting rights could be issued and would
then  represent  an  additional  class of stock required to approve any proposed
acquisition.  Issuance  of such additional shares may dilute the voting interest
of  the New ATSI stockholders.  If the Board of Directors of New ATSI determines
to  issue an additional class of voting Preferred Stock to a person opposed to a
proposed  acquisition,  such  person  might  be  able to prevent the acquisition
single-handedly.

     Stockholder  Meetings.  Nevada  law  provides  that  the annual stockholder
     ---------------------
meeting may be called by a corporation's Board of Directors or by such person or
persons  as  may  be  authorized by a corporation's articles of incorporation or
bylaws.  The New ATSI Articles of Incorporation provides that annual stockholder
meetings  may  be  called  only  by  the  New  ATSI Board of Directors or a duly
designated  committee  of  the  board.  Although  this  provision is intended to
prevent  the disruption of the company between annual meetings, it may also have
the  effect  of  preventing  or  making it more difficult for a person to obtain
immediate  control  of  New  ATSI even if they own a majority of the outstanding
shares.

     Advance Notice Requirements for Nomination of Directors and Proposal of New
     ---------------------------------------------------------------------------
Business  at  Annual Stockholder Meetings.  New ATSI's Articles of Incorporation
-----------------------------------------
provide  that  any stockholder desiring to make a nomination for the election of
directors  or  a  proposal for new business at a stockholder meeting must submit
written  notice not less than 30 or more than 60 days in advance of the meeting.
This  advance  notice  requirement  may  give management time to solicit its own
proxies  in an attempt to defeat any dissident slate of nominations.  Similarly,
adequate  advance  notice  of stockholder proposals will give management time to
study  such  proposals and to determine whether to recommend to the stockholders
that  such  proposals  be  adopted.  In certain instances, such provisions could
make it more difficult to oppose management's nominees or proposals, even if the
stockholders  believe  such nominees or proposals are in their interests.  These
provisions  may tend to discourage persons from bringing up matters disclosed in
the  proxy materials furnished to the stockholders and could inhibit the ability
of  stockholders  to  bring  up new business in response to recent developments.

     Classified  Board  of  Directors  and  Removal  of  Directors.  New  ATSI's
     -------------------------------------------------------------
Articles  of  Incorporation provide that the Board of Directors is to be divided
into  three  classes  which shall be as nearly equal in number as possible.  The
directors  in  each  class serve for terms of three years, with the terms of one
class  expiring  each  year.  Each  class  currently  consists  of approximately
one-third  (1/3) of the number of directors.  Each director will serve until his
successor  is elected and qualified.  A classified Board of Directors could make
it  more  difficult  for stockholders, including those holding a majority of New
ATSI's  outstanding  stock, to force an immediate change in the composition of a
majority  of the Board of Directors.  Since the terms of only one-third (1/3) of
the  incumbent  directors  expire  each  year,  it  requires at least two annual
elections  for  the  stockholders  to change a majority, whereas a majority of a
non-classified  board may be changed in one year.  The provision for a staggered
Board  of  Directors affects every election of directors and is not triggered by
the  occurrence  of  a  particular  event  such  as a hostile takeover.  Thus, a
staggered  Board of Directors makes it more difficult for stockholders to change
the majority of directors even when the reason for the change would be unrelated
to  a  takeover.

     Restriction  of  Maximum  Number  of Directors and Filling Vacancies on the
     ---------------------------------------------------------------------------
Board  of  Directors.  Nevada  law  requires  that  the  Board of Directors of a
--------------------
corporation  consist  of  one  or  more members and that the number of directors
shall  be  set  by  or  in the manner described in the corporation's articles of
incorporation  or bylaws.  New ATSI's Articles of Incorporation provide that the
number  of  directors  (exclusive  of  directors,  if  any, to be elected by the
holders of Preferred Stock) shall not be less than one or more than 15, as shall
be  provided  from  time  to  time  in accordance with the bylaws.  The power to
determine  the  number of directors within these numerical limitations is vested
in  the  Board  of Directors and requires the concurrence of at least two-thirds
(2/3) of the entire Board of Directors.  The effect of such provisions may be to
prevent  a person from quickly acquiring control of New ATSI through an increase
in  the  number  of  the  directors  and  election of nominees to fill the newly
created  vacancies.

Dissenters  Right  of  Appraisal

     Delaware  law  does  not  provide for appraisal of dissenting shares in the
merger.


                                      -20-

How to Exchange Old ATSI Certificates for New ATSI Certificates

     Enclosed  are  (i)  a  form letter of transmittal and (ii) instructions for
surrender  of  your  certificates  representing our common stock in exchange for
certificates  representing shares of New ATSI Common Stock and New ATSI Series H
Preferred  Stock.  Upon  surrender of a certificate representing Old ATSI Common
Stock to New ATSI, together with a duly executed letter of transmittal, New ATSI
will  issue,  as soon as practicable after approval of the Plan and Agreement of
Merger,  a  certificate  representing  that  number of shares of New ATSI Common
Stock and New ATSI Series H Preferred Stock you are entitled to receive.

     If  you  own  shares  of  Old  ATSI  Common Stock through a nominee or in a
brokerage  account, you do not have a certificate to submit for exchange.  Since
we believe there have been widespread sales of our stock without actual delivery
of  certificates,  it  is  possible  that  your  nominee  or broker may not have
certificates  representing  all  of  the  shares  owned  by  its  customers.  We
recommend that you contact your nominee or broker and request that a certificate
be issued to you so that you may submit it for exchange with the enclosed letter
of  transmittal.  This  will  ensure  that there are actually shares of New ATSI
Common Stock and New ATSI Series H Preferred Stock in your name on the books and
records  of  New  ATSI.

     You  are  required  to  surrender  your  certificates representing Old ATSI
Common  Stock  for certificates representing shares of New ATSI Common Stock and
New  ATSI  Series  H  Preferred  Stock.  The  Board  of  Directors  of  New ATSI
determined  that a reasonable period for you to submit certificates for exchange
is  60  days  from  the  Effective  Date  of  the  merger.  Dividends  and other
distributions  declared  by  New  ATSI  after the Effective Date with respect to
Common  Stock  or  Series  H  Preferred  Stock  and payable to holders of record
thereof  after  the  Effective  Date  will  be  paid  ONLY  to  the  holders  of
certificates  representing New ATSI Common Stock or Series H Preferred Stock and
not  to  the  holders  of  unsurrendered certificates representing shares of Old
ATSI.  In addition, holders of unsurrendered certificates representing shares of
Old  ATSI  Common  Stock  will  not  be  entitled to notice of or to vote at any
meetings  of  the  stockholders of New ATSI until they surrender the certificate
representing Old ATSI Common Stock.  New ATSI may enforce the mandatory delivery
of  the  certificates by action in the Nevada courts if you fail to deliver such
certificates  for  exchange.

Taxation  of  Re-incorporation

     We  have  not  sought  or received an opinion from any person regarding the
effect  of  the  reincorporation on Old ATSI, New ATSI or our stockholders under
federal  income  tax  laws.  We  believe that for federal income tax purposes no
gain or loss will be recognized by Old ATSI, New ATSI or the stockholders of Old
ATSI  who  receive  New ATSI common stock and Series H Preferred Stock for their
Old  ATSI common stock in connection with the reincorporation.  The adjusted tax
basis  of each whole share of New ATSI common stock and Series H Preferred Stock
received by a stockholder of Old ATSI as a result of the reincorporation will be
the  same as the stockholder's aggregate adjusted tax basis in the shares of Old
ATSI  common  stock.  A stockholder who holds Old ATSI common stock will include
in his holding period for the New ATSI common stock and Series H Preferred Stock
that  he  receives as a result of the reincorporation his holding period for the
Old  ATSI  common  stock.

     THE  FOREGOING  DOES NOT ADDRESS THE EFFECT OF THE INTERNAL REVENUE CODE ON
ANY  STOCKHOLDER  THAT  IS A BANK, REAL ESTATE TRUST, BROKER, DEALER, INVESTMENT
COMPANY  OR  OTHERWISE  SUBJECT  TO  SPECIAL TAX TREATMENT; IS A FOREIGN PERSON;
HOLDS  OUR  COMMON STOCK AS PART OF A "STRADDLE," "SYNTHETIC SECURITY," OR OTHER
SECURITY  HEDGE  POSITION; OR WHOSE FUNCTIONAL CURRENCY IS NOT THE UNITED STATES
DOLLAR.  STATE,  LOCAL  OR  FOREIGN  INCOME TAX CONSEQUENCES TO STOCKHOLDERS MAY
VARY  FROM THE FEDERAL INCOME TAX CONSEQUENCES DESCRIBED ABOVE, AND STOCKHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISOR AS TO THE CONSEQUENCES TO THEM OF THE
REINCORPORATION  UNDER  ALL  APPLICABLE  TAX  LAWS.


                                      -21-

                       WHERE YOU CAN FIND MORE INFORMATION

     ATSI  Communications,  Inc.  files  annual,  quarterly and special reports,
proxy  statements  and  other  information  with  the  Securities  and  Exchange
Commission  (the "SEC.")  You may read and copy any reports, statements or other
information  ATSI files at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois.  Please call the SEC at 1-800-SEC-0330
for  further  information  on  the public reference rooms.  ATSI SEC filings are
also  available to the public from commercial document retrieval services and at
the  web  site  maintained  by  the  SEC  at  "http://www.sec.gov."

     ATSI  WILL PROVIDE ANY PERSON ENTITLED TO VOTE AT THE ANNUAL MEETING A COPY
OF  ITS  ANNUAL,  QUARTERLY  AND  SPECIAL  REPORTS,  PROXY  STATEMENTS AND OTHER
INFORMATION, AT NO COST, UPON WRITTEN REQUEST AT THE FOLLOWING ADDRESS:

                            ATSI COMMUNICATIONS, INC.
                         8600 WURZBACH ROAD, SUITE 700W
                            SAN ANTONIO, TEXAS 78240

                              STOCKHOLDER PROPOSALS
                             FOR 2005 ANNUAL MEETING

     To  be  included  in  the  proxy statement, any proposals of holders of our
Common Stock intended to be presented at the next annual meeting of stockholders
must  be  received  by  us  no  later than November 25, 2004, and must otherwise
comply  with the requirements of Rule 14a-8 under the Securities Exchange Act of
1934,  as  amended.  Any  holder  of our Common Stock desiring to bring business
before  the  next  annual  meeting  of  stockholders  in  a  form  other  than a
stockholder  proposal  in  accordance  with  the  preceding  paragraph must give
written notice that is received by us no later than the 10th day after notice of
that  meeting  is  published.  Each notice of any such matter must include (a) a
brief  description  of the business desired to be brought before the meeting and
the  reasons  for  conducting  such  business  at  the meeting; (b) the name and
address  of  the  stockholder  who  intends  to  propose  such  business;  (c) a
representation  that  the  stockholder  is  a  holder  of record of stock of the
Company  entitled  to vote at such meeting and intends to appear in person or by
proxy at such meeting to propose such business; and (d) any material interest of
the  stockholder  in  such  business.



                                      -22-

                                    EXHIBIT A

                          PLAN AND AGREEMENT OF MERGER

                                       OF

                            ATSI COMMUNICATIONS, INC.
                            (a Delaware corporation)

                                       AND

                             ATSI MERGER CORPORATION
                             (a Nevada corporation)

PLAN  AND  AGREEMENT  OF  MERGER  entered  into  on  November  19, 2003, by ATSI
Communications,  Inc.,  a  Delaware  corporation  ("ATSI"),  and  ATSI  Merger
Corporation, a Nevada corporation ("Merger Corporation").

     WHEREAS, ATSI is a business corporation of the State of Delaware; and

     WHEREAS,  Merger  Corporation  is  a  business  corporation of the State of
Nevada;  and

     WHEREAS,  the  Delaware  General  Corporation  Law  permits  a  merger of a
business  corporation  of  the  State  of  Delaware  with  and  into  a business
corporation  of  another  jurisdiction;  and

     WHEREAS,  the  General  Corporation  Law of the State of Nevada permits the
merger  of  a  business  corporation  of  another  jurisdiction  with and into a
business  corporation  of  the  State  of  Nevada;  and

     WHEREAS, ATSI and Merger Corporation and the respective Boards of Directors
thereof  declare  it advisable and to the advantage, welfare, and best interests
of  said  corporations  and their respective stockholders to merge ATSI with and
into  Merger  Corporation  pursuant  to  the  provisions of the Delaware General
Corporation Law and pursuant to the provisions of the General Corporation Law of
the State of Nevada upon the terms and conditions hereinafter set forth;

     NOW,  THEREFORE,  in  consideration  of  the  premises  and  of  the mutual
agreement  of  the parties hereto, being thereunto duly entered into by ATSI and
approved  by  a resolution adopted by its Board of Directors and being thereunto
duly  entered into by Merger Corporation and approved by a resolution adopted by
its  Board of Directors, the Merger and the terms and conditions thereof and the
mode  of carrying the same into effect, are hereby determined and agreed upon as
hereinafter in this Plan and Agreement of Merger set forth.

     1.     ATSI  shall,  pursuant  to  the  provisions  of the Delaware General
Corporation  Law  and  to  the  provisions of the General Corporation Law of the
State  of Nevada, be merged with and into Merger Corporation, which shall be the
surviving  corporation from and after the effective time of the merger and which
is  sometimes  hereinafter referred to as the "surviving corporation," and which
shall  continue  to  exist  as said surviving corporation under its present name
pursuant  to  the  provisions  of  the  General  Corporation Law of the State of
Nevada.  The separate existence of ATSI, which is sometimes hereinafter referred
to  as  the  "terminating  corporation."  shall  cease at said effective time in
accordance with the provisions of the Delaware General Corporation Law.

     2.     The  name  of  the  surviving  corporation  shall be changed to ATSI
Communications,  Inc.  The  surviving  corporation  shall  designate a series of
preferred stock (the "Series H Convertible Preferred Stock") having preferences,
limitations, and relative rights as set forth in Schedule A attached hereto.  As
amended, the present Articles of Incorporation of the surviving corporation will
be  the Articles of Incorporation of the surviving corporation and will continue
in  full force and effect until changed, altered, or amended as therein provided
and in the manner prescribed by the provisions of the General Corporation Law of
the  State  of  Nevada.

     3.     The  present  bylaws of the surviving corporation will be the bylaws
of  said  surviving corporation and will continue in full force and effect until
changed, altered, or amended as therein provided and in the manner prescribed by
the provisions of the General Corporation Law of the State of Nevada.


                                      -23-

     4.     The directors and officers in office of the surviving corporation at
the  effective time of the merger shall be the members of the Board of Directors
and  the  officers  of  the  surviving corporation, all of whom shall hold their
directorships  and  offices  until  the  election  and  qualification  of  their
respective  successors  or  until  their  tenure  is  otherwise  terminated  in
accordance  with  the  by-laws  of  the  surviving  corporation.

     5.     Each issued share of the common stock of the terminating corporation
shall,  from  and  after the effective time of the merger, be converted into one
one-hundredth  (.01)  share of the common stock of the surviving corporation and
one-tenth  (.1)  share  of  the  Series  H  Convertible  Preferred  Stock of the
surviving  corporation.  The  surviving  corporation  shall  not  issue  any
certificate  or  script  representing  a  fractional  share  of  common stock or
preferred stock.  Any fractional shares that would otherwise be issuable will be
rounded up to the next full share.  Pursuant to the laws of the State of Nevada,
each  share  of  the  terminating corporation shall be tendered to the surviving
corporation for exchange into shares of the surviving corporation within 60 days
after  the  effective  time  of  the merger.  Upon receipt of such shares of the
terminating corporation, the surviving corporation shall issue a certificate for
the  whole  shares of the common stock and a certificate for the whole shares of
the  preferred  stock of the surviving corporation that are issuable in exchange
for  the  shares  of  the  terminating corporation.  The shares of the surviving
corporation  that are outstanding immediately prior to the effective time of the
merger shall be cancelled and deemed not outstanding as of the effective time of
the  merger.

     6.     Each  issued  share  of  the  preferred  stock  of  the  terminating
corporation shall, from and after the effective time of the merger, be converted
into  one  share  of  the  preferred  stock of the surviving corporation, having
substantially  similar  powers,  designations,  preferences  and  relative,
participating,  optional  and  other  rights  as  the  preferred  shares  of the
terminating  corporation.  Pursuant  to  the  laws  of the State of Nevada, each
share of the preferred stock of the terminating corporation shall be tendered to
the surviving corporation for exchange into shares of the preferred stock of the
surviving  corporation  within  60  days after the effective time of the merger.

     7.     The  surviving corporation may sue in any court with jurisdiction to
cause  any  stockholder  of  the  terminating corporation to tender certificates
representing  shares  owned  by such stockholder to be tendered to the surviving
corporation  for  exchange.  Stockholders  of  the terminating corporation shall
have no rights to notices, distributions or voting with respect to the surviving
corporation  unless  the  certificates  representing  shares  of the terminating
corporation  are  tendered  to  the  surviving  corporation  for  exchange.

     8.     Except  to the extent otherwise provided in the terms of outstanding
options, warrants or other rights to purchase, or securities convertible into or
exchangeable  for common stock of the terminating corporation (other than shares
of the preferred stock of the terminating corporation), each outstanding option,
warrant  or  other  right to purchase, and each outstanding security convertible
into or exchangeable for common stock shall be converted into an option, warrant
or  other  right  to  purchase, or security convertible into or exchangeable for
common  stock  of  the  surviving  corporation on the basis of one one-hundredth
(.01)  share  of the Common Stock of the surviving corporation for each share of
common  stock  of the terminating corporation.  The exercise price or conversion
ratio  set forth in such option, warrant or other right to purchase, or security
convertible  into  or exchangeable for common stock of the surviving corporation
shall  be  ratably adjusted so that the total exercise or conversion price shall
be  the  same  as  under  the  option,  warrant,  or other right to purchase, or
security  convertible  into  or exchangeable for common stock of the terminating
corporation.

     9.     In  the event that this Plan and Agreement of Merger shall have been
fully  approved  and  adopted  upon  behalf  of  the  terminating corporation in
accordance  with the provisions of the Delaware General Corporation Law and upon
behalf  of  the  surviving  corporation in accordance with the provisions of the
General Corporation Law of the State of Nevada, the said corporations agree that
they  will cause to be executed and filed and recorded any document or documents
prescribed  by the laws of the State of Delaware and by the laws of the State of
Nevada,  and  that they will cause to be performed all necessary acts within the
State of Delaware and the State of Nevada and elsewhere to effectuate the merger
herein  provided  for.

     10.     The  Board  of Directors and the proper officers of the terminating
corporation  and  of the surviving corporation are hereby authorized, empowered,
and  directed  to do any and all acts and things, and to make, execute, deliver,
file,  and  record any and all instruments, papers, and documents which shall be
or  become  necessary, proper, or convenient to carry out or put into effect any
of  the  provisions of this Plan and Agreement of Merger or of the merger herein
provided  for.

     11.     The  effective  time  of this Plan and Agreement of Merger, and the
time  at  which  the merger herein agreed shall become effective in the State of
Delaware and the State of Nevada, shall be on the last to occur of:


                                      -24-

     (a)  the  approval of this Plan and Agreement of Merger by the stockholders
          of the terminating corporation in accordance with the Delaware General
          Corporation  Law;  or

     (b)  the date this Plan and Agreement of Merger, or a certificate of merger
          meeting  the  requirements of the General Corporation Law of the State
          of  Nevada,  is  filed  with  the  Secretary  of State of the State of
          Nevada;  or

     (c)  January  25,  2004.

     12.     Notwithstanding  the  full  approval  and adoption of this Plan and
Agreement  of Merger, the said Plan and Agreement of Merger may be terminated at
any time prior to the filing thereof with the Secretary of State of the State of
Nevada.

     13.     Notwithstanding  the  full  approval  and adoption of this Plan and
Agreement of Merger, the said Plan and Agreement of Merger may be amended at any
time  and  from  time  to time prior to the filing thereof with the Secretary of
State  of  the  State of Delaware and at any time and from time to time prior to
the  filing of any requisite merger documents with the Secretary of State of the
State  of  Nevada  except that, without the approval of the stockholders of ATSI
and the stockholders of Merger Corporation, no such amendment may (a) change the
rate of exchange for any shares of ATSI or the types or amounts of consideration
that  will  be  distributed  to  the holders of the shares of stock of ATSI; (b)
change  any  term of the Articles of Incorporation of the surviving corporation;
or  (c) adversely affect any of the rights of the stockholders of ATSI or Merger
Corporation.

     IN  WITNESS  WHEREOF,  this Plan and Agreement of Merger is hereby executed
upon behalf of each of the constituent corporations parties thereto.

Dated:  November 19, 2003          ATSI COMMUNICATIONS, INC.

                                   /s/ Arthur L. Smith
                              By:  _______________________________
                                   Name:   Arthur L. Smith
                                   Title:  President and Chief Executive Officer

                                   ATSI MERGER CORPORATION

                                   /s/ Arthur L. Smith
                              By:  _______________________________
                                   Name:   Arthur L. Smith
                                   Title:  President and Chief Executive Officer




                                      -25-

                                    EXHIBIT B

                            ARTICLES OF INCORPORATION
                              (Pursuant to NRS 78)

1.   Name of Corporation:                   ATSI Merger Corporation.

2.   Resident Agent Name and Address:       CSC Services of Nevada, Inc.
                                            502 East John Street
                                            Carson City, Nevada 89706

3.   Shares:                                150,000,000 Common Stock, $.001 par
                                            value per share
                                            50,000,000 Preferred Stock, $.001
                                            par value per share

4.   Name and Address of
     Board of Directors/Trustees:           Arthur L. Smith
                                            8600 Wurzbach Road
                                            Suite 700W
                                            San Antonio, Texas 78240

                                            Antonio Estrada
                                            8600 Wurzbach Road
                                            Suite 700W
                                            San Antonio, Texas 78240

5.   Purpose:                               The purpose of the corporation shall
                                            be to engage in any lawful activity

6.   Name, Address and
     Signature of Incorporator:             Kevin Medill       /s/ Kevin Medill
                                            1001 McKinney
                                            Suite 1800
                                            Houston, Texas 77002

7.   Certificate of Acceptance
     Of Appointment of
     Registered Agent:                      I hereby accept appointment as
                                            Resident Agent for the above named
                                            corporation. CSC Services of Nevada,
                                            Inc.
                                            /s/




                                      -26-

                               OPTIONAL PROVISIONS

                                     TO THE

                            ARTICLES OF INCORPORATION

                                       OF

                             ATSI MERGER CORPORATION

     8.     ISSUANCE  OF  SHARES:  The  200,000,000  shares  of  all  classes of
            ---------------------
capital  stock which the corporation has authority to issue may be issued by the
corporation  from  time  to  time  as  approved by the Board of Directors of the
corporation  without  the  approval  of  the  stockholders  except  as otherwise
provided  by the General Corporation Law of the State of Nevada, the Articles of
Incorporation of the corporation, or the rules of a national securities exchange
if  applicable.  The  consideration for the issuance of the shares shall be paid
to or received by the corporation in full before their issuance and shall not be
less than the par value per share.  The consideration for the issuance of shares
shall  be  cash,  services rendered, personal property (tangible or intangible),
real  property, leases of real property or any combination of the foregoing.  In
the  absence  of  actual  fraud in the transaction, the judgment of the Board of
Directors  as  to  the  value  of  such consideration shall be conclusive.  Upon
payment  of  such consideration such shares shall be deemed to be fully paid and
nonassessable.  In  the case of a stock dividend, the part of the surplus of the
corporation  which  is transferred to stated capital upon the issuance of shares
as  a stock dividend shall be deemed to be the consideration for their issuance.

     (a)     Except  as  provided  in  the  Articles  of  Incorporation  of  the
     corporation, or in the powers, designations preferences and relative rights
     of  any  preferred stock, the holders of the common stock shall exclusively
     possess all voting power. Subject to the provisions of these Articles, each
     holder  of  shares  of  common stock shall be entitled to one vote for each
     share  held  by  such  holders.

     Whenever there shall have been paid, or declared and set aside for payment,
     to  the  holders  of the outstanding shares of any class or series of stock
     having preference over the common stock as to the payment of dividends, the
     full  amount  of  dividends  and  sinking  fund or retirement fund or other
     retirement  payments,  if  any,  to  which  such  holders  are respectively
     entitled  in  preference to the common stock, then dividends may be paid on
     the  common  stock,  and  on  any  class  or  series  of  stock entitled to
     participate  therewith as to dividends, out of any assets legally available
     for the payment of dividends, but only when and as declared by the Board of
     Directors  of  the  corporation.

     In  the  event  of  any  liquidation,  dissolution  or  winding  up  of the
     corporation,  after  there  shall have been paid, or declared and set aside
     for  payment,  to the holders of the outstanding shares of any class having
     preference  over  the common stock in any such event, the full preferential
     amounts  to which they are respectively entitled, the holders of the common
     stock  and  any class or series of stock entitled to participate therewith,
     in  whole or in part, as to distribution of assets shall be entitled, after
     payment  or  provision  for  payment  of  all  debts and liabilities of the
     corporation,  to  receive the remaining assets of the corporation available
     for  distribution,  in  cash  or  in  kind.

     Each share of common stock shall have the same relative powers, preferences
     and  rights  as, and shall be identical in all respects with, all the other
     shares  of  common  stock  of  the  corporation.

     (b)     Except  as  provided  in  the  Articles  of  Incorporation  of  the
     corporation,  the  Board  of Directors of the corporation is authorized, by
     resolution  or  resolutions  from  time to time adopted, to provide for the
     issuance  of  preferred  stock  in  series and to fix and state the powers,
     designations,  preferences  and  relative, participating, optional or other
     special  rights  of the shares of each such series, and the qualifications,
     limitation  or  restrictions  thereof,  including,  but  not  limited  to
     determination  of  any  of  the  following:

          (1)  the  distinctive  serial  designation  and  the  number of shares
          constituting  such  series;

          (2)  the  rights  in  respect  of dividends, if any, to be paid on the
          shares  of  such series, whether dividends shall be cumulative and, if
          so,  from  which  date  or  dates,  the  payment  or date or dates for
          dividends, and the participating or other special rights, if any, with
          respect  to  dividends;

          (3)  the voting powers, full or limited, if any, of the shares of such
          series;


                                      -27-

          (4)  whether the shares of such series shall be redeemable and, if so,
          the  price or prices at which, and the terms and conditions upon which
          such  shares  may  be  redeemed:

          (5)  the  amount  or amounts payable upon the shares of such series in
          the  event  of  voluntary  or  involuntary liquidation, dissolution or
          winding  up  of  the  corporation;

          (6)  whether  the  shares  of  such  series  shall  be entitled to the
          benefits of a sinking or retirement fund to be applied to the purchase
          or  redemption of such shares, and, if so entitled, the amount of such
          fund  and the manner of its application, including the price or prices
          at  which  such  shares  may  be  redeemed  or  purchased  through the
          application  of  such  funds;

          (7)  whether  the  shares of such series shall be convertible into, or
          exchangeable  for,  shares  of any other class or classes or any other
          series  of  the  same  or  any  other class or classes of stock of the
          corporation  and,  if  so  convertible or exchangeable, the conversion
          price or prices, or the rate or rates of exchange, and the adjustments
          thereof, if any, at which such conversion or exchange may be made, and
          any  other  terms  and  conditions  of  such  conversion  or exchange;

          (8)  the  subscription or purchase price and form of consideration for
          which  the  shares  of  such  series  shall  be  issued;  and

          (9)  whether the shares of such series which are redeemed or converted
          shall  have  the status of authorized but unissued shares of preferred
          stock and whether such shares may be reissued as shares of the same or
          any  other  series  of  preferred  stock.

     Each  share  of each series of preferred stock shall have the same relative
     powers,  preferences  and rights as, and shall be identical in all respects
     with,  all  the  other shares of the corporation of the same series, except
     the  times  from which dividends on shares which may be issued from time to
     time  of  any  such  series  may  begin  to  accrue.

     (c)     No  holder  of  any  of  the shares of any class of the corporation
     shall  be  entitled  as  of  right to subscribe for, purchase, or otherwise
     acquire  any  shares  of any class of the corporation which the corporation
     proposes  to  issue or any rights or options which the corporation proposes
     to  grant for the purchase of shares of any class of the corporation or for
     the  purchase  of  any  shares,  bonds,  securities,  or obligations of the
     corporation  which are convertible into or exchangeable for, or which carry
     any  rights, to subscribe for, purchase, or otherwise acquire shares of any
     class  of  the  corporation;  and  any  and  all  of  such  shares,  bonds,
     securities,  or  obligations  of  the corporation, whether now or hereafter
     authorized  or created, may be issued, or may be reissued or transferred if
     the  same have been reacquired and have treasury status, and any and all of
     such  rights  and  options may be granted by the Board of Directors to such
     persons,  firms,  corporations,  and  associations,  and  for  such  lawful
     consideration,  and  on  such  terms,  as  the  Board  of  Directors in its
     discretion  may determine, without first offering the same, or any thereof,
     to  any  said  holder.

     (d)    No shares of any class or series shall have cumulative voting rights
     in the  election  of  directors.

     9.     CONDUCT OF STOCKHOLDER MEETINGS:      The following provisions shall
            --------------------------------
govern the conduct of meetings of the stockholders of the corporation:

     (a)    Meetings of the stockholders may be held at such place as the bylaws
     may provide.

     (b)     Any  action  required  or  permitted  to be  taken at any annual or
     special  meeting  of  stockholders  may  be effected by the adoption by the
     Board  of  Directors  of  resolutions  authorizing  such  action by written
     consent  of  the  stockholders  and  the adoption by the written consent of
     stockholders  constituting  a majority of the voting power entitled to vote
     on  such  matter  at  a  meeting.

     (c)     Special  meetings  of  the  stockholders of the corporation for any
     purpose  or purposes may be called at any time by the Board of Directors of
     the corporation, or by a committee of the Board of Directors which has been
     duly  designated  by  the  Board of Directors and whose power and authority
     include  the power and authority to call such meetings but special meetings
     may  not  be  called  by  another  person  or  persons.


                                      -28-

     (d)     Nominations for the election of directors and proposals for any new
     business  to  be  taken up at any annual or special meeting of stockholders
     may  be  made  by  the  Board  of  Directors  of  the corporation or by any
     stockholder  of  the corporation entitled to vote generally in the election
     of  directors.  In  order  for a stockholder of the corporation to make any
     such nominations and/or proposals at an annual meeting or such proposals at
     a  special  meeting,  he  or  she  shall  give  notice  thereof in writing,
     delivered  or mailed by first class United States mail, postage prepaid, to
     the  Secretary  of  the corporation not less than thirty days nor more than
     sixty  days prior to any such meeting; provided, however, that if less than
     forty  days'  notice  of the meeting is given to stockholders, such written
     notice shall be delivered or mailed, as prescribed, to the Secretary of the
     corporation  not later than the close of the tenth day following the day on
     which  notice  of  the meeting was mailed to stockholders. Each such notice
     given  by  a  stockholder  with  respect to nominations for the election of
     directors  shall  set  forth  (1)  the  name, age, business address and, if
     known,  residence  address of each nominee proposed in such notice, (2) the
     principal occupation or employment of each such nominee, and (3) the number
     of  shares of stock of the corporation which are beneficially owned by each
     such  nominee.  In  addition,  the stockholder making such nomination shall
     promptly  provide  any  other  information  reasonably  requested  by  the
     corporation.

     (e)     Each  such  notice  given  by  a stockholder  to the Secretary with
     respect  to business proposals to bring before a meeting shall set forth in
     writing  as to each matter: (1) a brief description of the business desired
     to  be  brought  before  the  meeting  and  the reasons for conducting such
     business  at  the  meeting; (2) the name and address, as they appear on the
     corporation's  books,  of  the stockholder proposing such business; (3) the
     class  and number of shares of the corporation which are beneficially owned
     by  the  stockholder;  and  (4) any material interest of the stockholder in
     such  business. Notwithstanding anything in these Articles of Incorporation
     to  the  contrary,  no business shall be conducted at the meeting except in
     accordance  with  the  procedures  set  forth  in  this  Article.

     (f)     The Chairman of  the annual or special meeting of stockholders may,
     if  the  facts  warrant,  determine  and  declare  to  such  meeting that a
     nomination  or  proposal  was  not  made  in  accordance with the foregoing
     procedure,  and,  if  he  should  so  determine, he shall so declare to the
     meeting  and  the defective nomination or proposal shall be disregarded and
     laid  over  for  action at the next succeeding adjourned, special or annual
     meeting  of  the  stockholders taking place thirty days or more thereafter.
     This  provision  shall  not require the holding of any adjourned or special
     meeting  of  stockholders  for  the  purpose  of considering such defective
     nomination  or  proposal.

     10.     INCREASE  IN NUMBER AND ELECTION OF DIRECTORS:  The governing board
             ----------------------------------------------
of  the corporation shall be styled as a "Board of Directors," and any member of
said  board  shall  be  styled  as  a "Director." The number of directors of the
corporation  may  be increased or decreased in the manner provided in the bylaws
of  the  corporation;  provided,  that  the  number  of directors shall never be
greater than 15 nor less than one (exclusive of directors, if any, to be elected
by  holders  of preferred stock of the corporation).  Exclusive of directors, if
any,  elected  by  the  holders  of  preferred  stock,  all vacancies, including
vacancies  caused  by  an  increase  in  the  number  of directors and including
vacancies  resulting  from the removal of directors by the stockholders entitled
to  vote which are not filled by said stockholders, may be filled by the vote of
a  majority  of the remaining directors, though less than a quorum.  No decrease
in  the  number of directors shall have the effect of shortening the term of any
incumbent  director.

If  the  Board  of  Directors  consists  of  six  or  more persons, the Board of
Directors  of  the corporation (other than directors which may be elected by the
holders  of  preferred  stock)  shall be divided into three classes of directors
which  shall be designated Class I, Class II and Class III.  The members of each
class  shall be elected for a term of three years and until their successors are
elected  and  qualified.  Such classes shall be as nearly equal in number as the
then  total number of directors constituting the entire Board of Directors shall
permit,  exclusive  of directors, if any, elected by holders of preferred stock,
with the terms of office of all members of one class expiring each year.  Should
the  number  of directors not be equally divisible by three, the excess director
or directors shall be assigned to Classes I or II as follows: (1) if there shall
be  an  excess  of  one directorship over the number equally divisible by three,
such  extra  directorship shall be classified in Class I; and (2) if there be an
excess  of two directorships over a number equally divisible by three, one shall
be  classified  in  Class  I  and  the  other  in Class II.  Notwithstanding the
foregoing,  the  director  whose  term  shall expire at any annual meeting shall
continue  to serve until such time as his successor shall have been duly elected
and  shall  have  qualified  unless his position on the Board of Directors shall
have been abolished by action taken to reduce the size of the Board of Directors
prior  to  said  meeting.

Whenever  the  holders  of  any  one  or  more  series of preferred stock of the
corporation  shall have the right, voting separately as a class, to elect one or
more  directors  of  the  corporation, the Board of Directors shall include said
directors so elected in addition to the number of directors fixed as provided in
this  provision  10.  Notwithstanding the foregoing, and except as otherwise may
be  required by law, whenever the holders of any one or more series of preferred
stock  of  the  corporation  elect


                                      -29-

one or more directors of the corporation, the terms of the director or directors
elected  by  such  holders shall expire at the next succeeding annual meeting of
stockholders.

     11.     DURATION  OF  CORPORATION:  The  corporation  shall  have perpetual
             --------------------------
existence.

     12.     LIABILITY OF DIRECTORS:  The personal liability of the directors of
             -----------------------
the  corporation  is  hereby  eliminated  to the fullest extent permitted by the
General  Corporation  Law of the State of Nevada, as the same may be amended and
supplemented.  Any  repeal  or  amendment of this Article by the stockholders of
the  corporation  shall  be  prospective.

     13.     INDEMNIFICATION:  The  corporation  shall,  to  the  fullest extent
             ----------------
permitted by the General Corporation Law of the State of Nevada, as the same may
be  amended  and  supplemented, indemnify any and all persons whom it shall have
power  to indemnify under said Law from and against any and all of the expenses,
liabilities,  or  other  matters  referred to in or covered by said Law, and the
indemnification  provided  for herein shall not be deemed exclusive of any other
rights  to  which  those indemnified may be entitled under any bylaw, agreement,
vote  of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office,  and  shall  continue  as  to  a person who has ceased to be a director,
officer,  employee,  or  agent  and  shall  inure  to  the benefit of the heirs,
executors,  and  administrators  of  such  a  person.

     14.     AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS:  The Articles of
             --------------------------------------------------
Incorporation  and  the  Bylaws  of  the  corporation  may be repealed, altered,
amended  or  rescinded  only  by  a  vote  of  a majority of the entire Board of
Directors  or  a  majority of the outstanding shares of capital stock, voting as
classes.



                                      -30-

                                    EXHIBIT C

                                   DESIGNATION
                                       OF
                      SERIES H CONVERTIBLE PREFERRED STOCK
                                       OF
                            ATSI MERGER CORPORATION
                              (The "Corporation")

1.     Designation  and  Amount.  Of  the Fifty  Million (50,000,000) authorized
       ------------------------
shares  of  Preferred  Stock  (the  "Preferred Stock") of the Corporation, there
shall  be  a  class  of  Series H Convertible Preferred Stock of the Corporation
designated  as  "Series H Convertible Preferred Stock," and the number of shares
constituting  such  series  shall  be Eleven Million (11,000,000). Such class is
referred to herein as the "Series H Convertible Preferred Stock."

2.     Stated  Capital.  The  amount to be represented  in stated capital at all
       ---------------
times for each share of the Series H Convertible Preferred Stock shall be $.001.

3.     Rank.  All  shares of Series H  Convertible Preferred Stock rank prior to
       ----
all  of  the  Corporation's Common Stock, par value $.001 per share (the "Common
Stock"),  and  Preferred  Stock,  par  value  $.001  per share, now or hereafter
issued,  both  as to payment of dividends and as to distributions of assets upon
liquidation,  dissolution or winding up of the Corporation, whether voluntary or
involuntary.  All  shares  of Series H Convertible Preferred Stock shall rank as
junior  to  any  series  of  Preferred  Stock having a designation with a letter
occurring  before  the  letter  H.

4.     Dividends.  The  Series  H Convertible Preferred  Stock shall be entitled
       ---------
to receive dividends and distributions on parity with the Common Stock as though
the  Series  H Convertible Preferred Stock had been converted to Common Stock at
the highest conversion rate on the day before the record date for such dividends
and  distributions.

5.     Liquidation  Preference.  In  the event  of a liquidation, dissolution or
        -----------------------
winding  up of the Corporation, whether voluntary or involuntary, the holders of
Series  H  Convertible  Preferred  Stock shall be entitled to receive out of the
assets  of the Corporation, whether such assets are stated capital or surplus of
any nature, an amount equal to $.10 per share (the "Liquidation Amount"), and no
more,  before any payment shall he made or any assets distributed to the holders
of  Common Stock or any other class or series of the Corporation's capital stock
ranking  junior  as  to liquidation rights to the Series H Convertible Preferred
Stock.  If  the  assets  of  the  Corporation available for distribution are not
sufficient to pay to the holders of the Series H Convertible Preferred Stock and
all  other  series  of  stock  ranking on a parity with the Series H Convertible
Preferred  Stock  the Liquidation amount, the assets of the Corporation shall be
distributed  ratably  among  the  holders  of the Series H Convertible Preferred
Stock  and  such  series  ranking  on  a  parity  with  the Series H Convertible
Preferred  Stock.  Neither  a  consolidation  or  merger of the Corporation with
another  corporation  nor a sale or transfer of all or part of the Corporation's
assets  for cash, securities or other property will be considered a liquidation,
dissolution  or  winding  up  of  the  Corporation.

6.     Optional  Redemptions  for  Common  Stock.
       -----------------------------------------

(a)     Each  issued  and  outstanding  share of  Series H Convertible Preferred
Stock  is  redeemable for one (1) fully paid and non-assessable shares of Common
Stock  at  the  option  of  the  Corporation  at  any  time.

(b)     The  Corporation  shall  mail  to  each  record  holder  of  Series  H
Convertible  Preferred  Stock  a  notice of redemption (the "Redemption Notice")
which  shall  state the date upon which the Series H Convertible Preferred Stock
will  be  redeemed,  the  number of shares of Common Stock to be issued for each
share  of Series H Convertible Preferred Stock, and the place or places at which
the Series H Convertible Preferred Stock must be presented for redemption.  From
and  after  the redemption date specified in the Redemption notice all shares of
Series  H  Convertible  Preferred Stock shall be deemed to be converted into the
number  of fully paid and non-assessable shares of Common Stock specified in the
Redemption  Notice  and  any  certificate  representing  shares  of  Series  H
Convertible Preferred Stock shall be deemed to represent the number of shares of
Common  Stock  issuable  upon  redemption  of the Series H Convertible Preferred
Stock  represented  thereby.

(c)     Any  Redemption  Notice  by  the  Corporation  which is mailed as herein
provided  shall  be conclusively presumed to have been duly given whether or not
the  holder  of  Series  H  Convertible Preferred Stock receives such Redemption
Notice;  and  failure  to  give such Redemption Notice by mail, or any defect in
such  Redemption Notice shall not affect the validity of the proceedings for the
redemption of any other shares of Series H Convertible Preferred Stock.



7.     Conversion  Privilege.
        ---------------------

(a)     Right  of  Conversion.  Each  issued  and  outstanding share of Series H
         ---------------------
Convertible  Preferred  Stock  shall  be convertible at the option of the holder
thereof,  as hereinafter adjusted, into:  (i) one and one-fifth (1.2) fully paid
and non-assessable shares of Common Stock by the holder thereof after such share
has  been  owned of record by such holder for a period of one (1) year; and (ii)
one  and  one-half (1.5) fully paid and non-assessable shares of Common Stock by
the  holder thereof after such share has been owned of record by such holder for
a  period  of  two  (2)  years.

(b)     Conversion  Procedure.  Any  holder  of  shares  of Series H Convertible
         ---------------------
Preferred  Stock  desiring  to  convert  such  shares  into  Common  Stock shall
surrender  the  certificate  or  certificates  for  such  shares  of  Series  H
Convertible Preferred Stock at the office of the transfer agent for the Series H
Convertible  Preferred  Stock,  which  certificate  or  certificates,  if  the
Corporation  shall  so  require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in
blank,  accompanied  by  irrevocable  written notice to the Corporation that the
holder  elects so to convert such shares of Series H Convertible Preferred Stock
and  specifying  the  name  or  names  (with  address) in which a certificate or
certificates  for  Common  Stock  are  to  be  issued.

The  Corporation will, as soon as practicable after such deposit of certificates
for  Series H Convertible Preferred Stock accompanied by the written notice and,
compliance  with any other conditions herein contained, deliver at the office of
the  transfer  agent  to  the  person  for whose account such shares of Series H
Convertible  Preferred Stock were so surrendered, or to his nominee or nominees,
certificates  for the number of full shares of Common Stock to which he shall be
entitled  as  aforesaid,  together  with  a cash adjustment of any fraction of a
share  as  hereinafter  provided.  Subject  to  the following provisions of this
paragraph,  such  conversion shall be deemed to have been made as of the date of
such  surrender  of  the  shares  of  Series H Convertible Preferred Stock to be
converted,  and  the  person  or  persons  entitled  to receive the Common Stock
deliverable  upon  conversion of such Series H Convertible Preferred Stock shall
be treated for all purposes as the record holder or holders of such Common Stock
on  such  date; provided, however, that the Corporation shall not be required to
convert  any  shares  of  Series  H  Convertible Preferred Stock while the stock
transfer  books of the Corporation are closed for any purpose, but the surrender
of  Series  H Convertible Preferred Stock for conversion during any period while
such  books are so closed shall become effective for conversion immediately upon
the  reopening  of  such  books as if the surrender had been made on the date of
such  reopening, and the conversion shall be at the conversion rate in effect on
such  date.

(c)     Adjustment of Conversion Rate.  The number of shares of Common Stock and
         -----------------------------
number  or  amount  of any other securities and property as hereinafter provided
into  which  a share of Series H Convertible Preferred Stock is convertible (the
"Conversion  Rate") shall be subject to adjustment from time to time as follows:

(i)  In  case the Corporation shall (1) pay a dividend or make a distribution on
its  Common  Stock  that  is  paid  or  made (A) in other shares of stock of the
Corporation  or  (B)  in  rights  to  purchase stock or other securities if such
rights  are  not separable from the Common Stock except upon the occurrence of a
contingency,  or  (2)  subdivide  its  outstanding shares of Common Stock into a
greater  number  of shares or (3) combine its outstanding shares of Common Stock
into  a  smaller  number of shares, then in any such case the conversion rate in
effect  immediately  prior  thereto  shall be adjusted retroactively as provided
below  so  that the holder of any shares of Series H Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
shares  of  Common  Stock  of  the  Corporation  and  other shares and rights to
purchase  stock  or  other securities (or, in the event of the redemption of any
such  shares or rights, any cash, property or securities paid in respect of such
redemption)  which such holder would have owned or have been entitled to receive
after  the  happening  of  any  of the events described above had such shares of
Series  H  Convertible  Preferred  Stock been converted immediately prior to the
happening  of  such event.  An adjustment made pursuant to this subparagraph (i)
shall  become  effective  immediately  after  the  record  date in the case of a
dividend  or  distribution  and  shall  become  effective  immediately after the
effective  date  of  the  subdivision  or  combination.

(ii)  In  case  the Corporation shall issue rights or warrants to all holders of
its  Common  Stock  entitling them to subscribe for or purchase shares of Common
Stock  at  a  price  per  share  less  than  the  current market price per share
(determined  as  provided  below)  of the Common Stock on the date fixed for the
determination  of  stockholders  entitled to receive such rights or warrants, or
shall sell any shares of Common Stock at a price per share less than the current
market  price  per  share,  then the conversion rate in effect at the opening of
business  on  the  day  following the date fixed for such determination shall be
increased  by  multiplying  such  conversion  rate  by  a  fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of  business  on the date fixed for such determination plus the number of shares
of  Common  Stock  so  offered  for subscription or purchase and the denominator
shall  be  the  number  of  shares  of  Common Stock outstanding at the close of
business  on  the date fixed for such determination plus the number of shares of
Common  Stock  which  the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such  current  market price, such increase to become effective immediately after
the  opening  of


                                      -32-

business  on  the day following the date fixed for such determination: provided,
however,  in  the  event  that  all  the  shares  of  Common  Stock  offered for
subscription  or  purchase are not delivered upon the exercise of such rights or
warrants,  upon  the  expiration  of such rights or warrants the conversion rate
shall  be  readjusted to the conversion rate which would have been in effect had
the  numerator  and  the denominator of the foregoing fraction and the resulting
adjustment  been  made  based upon the number of shares of Common Stock actually
delivered  upon  the  exercise  of  such rights or warrants rather than upon the
number  of  shares of Common Stock offered for subscription or purchase. For the
purposes  of this subparagraph (ii), the number of shares of Common Stock at any
time  outstanding  shall  not  include  shares  held  in  the  treasury  of  the
Corporation.

(iii) In case the Corporation shall, by dividend or otherwise, distribute to all
holders  of  its  Common  Stock  evidences  of its indebtedness, cash (excluding
ordinary cash dividends paid out of retained earnings of the Corporation), other
assets,  securities  or  rights  or  warrants  to  subscribe for or purchase any
security (excluding those referred to in subparagraphs (i) and (ii) above), then
in  each  such  case the conversion rate shall be adjusted retroactively so that
the  same  shall equal the rate determined by multiplying the conversion rate in
effect  immediately  prior  to  the  close of business on the date fixed for the
determination  of  stockholders  entitled  to  receive  such  distribution  by a
fraction  of  which  the  numerator  shall be the current market price per share
(determined  as  provided  below) of the Common Stock on the date fixed for such
determination  and  the denominator shall be such current market price per share
of  the  Common Stock less the amount of cash and the then fair market value (as
determined  by  the  Board of Directors, whose determination shall be conclusive
and  described  in a resolution of the Board of Directors) of the portion of the
assets,  rights,  securities  or  evidences  of  indebtedness  so  distributed
applicable  to  one  share  of Common Stock, such adjustment to become effective
immediately prior to the opening of business on the day following the date fixed
for  the  determination  of stockholders entitled to receive such distribution.

(iv) For the purpose of any computation under this Section 7, the current market
price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices for the 20 consecutive trading days commencing with the
1st trading day before the day in question. The closing price for each day shall
be  the  reported last sales price regular way or, in case no such reported sale
takes  place  on  such  day,  the  average of the reported closing bid and asked
prices  regular  way,  in  either  case  on the market on which the Common Stock
trades  in  the  following order:  the principal national securities exchange on
which  the Common Stock is listed or admitted to trading (based on the aggregate
dollar value of all securities listed or admitted to trading) the NASDAQ System,
the  Over-the-Counter  Bulletin  Board, and the over-the-counter market.  If the
Common  Stock  does  not  trade  on  any  such  market  for a period of five (5)
consecutive  trading  days  during such period the current market price shall be
specified  by the Board of Directors acting in good faith.   "Trading day" shall
mean a day on which the market on which the market used to determine the closing
price  is open for the transaction of business or the reporting of trades or, if
the  closing  price  is  not  so  determined,  a day on which the New York Stock
Exchange  is  open  for  the  transaction  of  business.

(v)  No  adjustment  in  the  conversion  rate  shall  be  required  unless such
adjustment  would  require  an increase or decrease of at least 1% in such rate;
provided,  however,  that  the  Corporation  may  make  any  such adjustment its
election;  and  provided  further,  that any adjustments which by reason of this
subparagraph (vi) are not required to be made shall be carried forward and taken
into  account in any subsequent adjustment.  All calculations under this Section
7  shall be made to the nearest cent or to the nearest one-hundredth of a share,
as  the  case  may  be.

(vi)  Whenever  the  conversion rate is adjusted as provided in any provision of
this  Section 7:  (1) the Corporation shall compute the adjusted conversion rate
in  accordance with this Section 7 and shall prepare a certificate signed by the
principal  financial  officer  of  the  Corporation  setting  forth the adjusted
conversion  rate  and  showing  in  reasonable  detail the facts upon which such
adjustment  is  based,  and  such  certificate shall forthwith be filed with the
transfer  agent  of  the  Series H Convertible Preferred Stock; and (2) a notice
stating  that  the  conversion  rate  has  been  adjusted  and setting forth the
adjusted  conversion  rate  shall  be  mailed  by  the Corporation to all record
holders  of Series H Convertible Preferred Stock at their then last addresses as
they shall appear in the stock transfer books of the Corporation.

(vii) In the event that at any time, as a result of any adjustment made pursuant
to  this  Section  7, the holder of any shares of Series H Convertible Preferred
Stock thereafter surrendered for conversion shall become entitled to receive any
shares  of  the  Corporation other than shares of Common Stock or to receive any
other  securities,  the  number of such other shares or securities so receivable
upon  conversion  of  any share of Series H Convertible Preferred Stock shall be
subject  to  adjustment  from  time  to  time in a manner and on terms as nearly
equivalent  as  practicable  to  the provisions contained in this Section 7 with
respect to the Common Stock.

(d)       No  Fractional  Shares.  No  fractional  shares or scrip representing
           ----------------------
fractional  shares  of  Common Stock shall be issued upon conversion of Series H
Convertible  Preferred  Stock.  Any  fractional  shares  that would otherwise be
issuable  redeemed  in  cash  at  the  current  market price.   If more than one
certificate representing shares of Series H Convertible Preferred Stock shall be
surrendered  for  conversion  at one time by the same holder, the number of full
shares  issuable  upon  conversion


                                      -33-

thereof  shall  be  computed  on  the basis of the aggregate number of shares of
Series  H  Convertible  Preferred  Stock  so  surrendered.

(e)      Reclassification; Consolidation; Merger or Sale of Assets.  In case of
          ---------------------------------------------------------
any  reclassification  of the Common Stock, any consolidation of the Corporation
with, or merger of the Corporation into, any other person, any merger of another
person  into  the  Corporation (other than a merger which does not result in any
reclassification,  conversion, exchange or cancellation of outstanding shares of
Common  Stock  of the Corporation), any sale or transfer of all or substantially
all  of  the assets of the Corporation or any compulsory share exchange pursuant
to  which  the  Common  Stock  is converted into other securities, cash or other
property,  then  lawful  provision  shall  be  made as part of the terms of such
transaction  whereby  the holder of each share of Series H Convertible Preferred
Stock then outstanding shall be entitled to receive the such securities, cash or
other  property  he  would  be  entitled  to  receive  if  all  of  the Series H
Convertible  Preferred Stock had been converted to shares of Common Stock of the
Corporation  immediately  prior to such reclassification, merger, sale, transfer
or  share  exchange.

(f)       Reservation of Shares; Transfer Taxes; Etc.  The Corporation shall at
           ------------------------------------------
all  times reserve and keep available, out of its authorized and unissued stock,
solely  for  the purpose of effecting the conversion of the Series H Convertible
Preferred  Stock,  such  number of shares of its Common Stock free of preemptive
rights  as shall from time to time be sufficient to effect the conversion of all
shares  of  Series  H Convertible Preferred Stock from time to time outstanding.
The  Corporation  shall  from  time  to time, in accordance with the laws of the
State  of  its incorporation, increase the authorized number of shares of Common
Stock  if at any time the number of shares of Common Stock not outstanding shall
not be sufficient to permit the conversion of all the then outstanding shares of
Series  H  Convertible  Preferred  Stock.

If any shares of Common Stock required to be reserved for purposes of conversion
of  the Series H Convertible Preferred Stock hereunder require registration with
or  approval of any governmental authority under any Federal or State law before
such  shares  may  be issued upon conversion, the Corporation will in good faith
and  as  expeditiously  as  possible  endeavor  to  cause such shares to be duly
registered  or  approved,  as the case may be.  If the Common Stock is listed on
the  New  York  Stock  Exchange  or  any other national securities exchange, the
Corporation  will,  if  permitted  by  the rules of such exchange, list and keep
listed  on such exchange, upon official notice of issuance, all shares of Common
Stock issuable upon conversion of the Series H Convertible Preferred Stock.

The Corporation will pay any and all issue or other taxes that may be payable in
respect  of any issue or delivery of shares of Common Stock on conversion of the
Series  H  Convertible  Preferred Stock.  The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in  the  issue  or delivery of Common Stock (or other securities or assets) in a
name other than that which the shares of Series H Convertible Preferred Stock so
converted  were  registered,  and no such issue or delivery shall be made unless
and  until  the  person  requesting  such  issue has paid to the Corporation the
amount  of  such tax or has established, to the satisfaction of the Corporation,
that  such  tax  has  been  paid.

8.     Voting  Rights.  The holders of the Series H Convertible Preferred Stock
        --------------
shall  not  be  entitled  to  vote  on  any  matters  subject to the vote of the
stockholders  of  the Corporation except to the extent expressly provided by the
Nevada  General  Corporation  Law.

9.      Securities Not Registered Under the Securities Act of 1933. Neither the
         ----------------------------------------------------------
shares  of  Series  H  Convertible Preferred Stock nor the Common Stock issuable
upon  conversion  thereof  has  been registered under the Act or the laws of any
state  of the United States and may not be transferred without such registration
or  an  exemption  from  registration.

(a)       Restrictive  Legends.  Each  share  of Series H Convertible Preferred
           --------------------
Stock  and certificate for Common Stock issued upon the conversion of any shares
of Series H Convertible Preferred Stock, and each Series H Convertible Preferred
Stock  certificate  issued  upon  the  transfer  of  any such shares of Series H
Convertible  Preferred  Stock  or  Common  Stock  shall  be stamped or otherwise
imprinted with a legend in substantially the following form:

     "THE  SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
     SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
     IN  THE  ABSENCE  OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
     SAID  ACT."

(b)       Notice  of Proposed Transfer: Opinions of Counsel. Except as provided
           -------------------------------------------------
in  paragraph (c) of this Section 9, prior to any transfer of any such shares of
Series H Convertible Preferred Stock the holder thereof will give written notice
to  the  Corporation  of  such holder's intention to effect such transfer and to
comply  in  all  other respects with this Section 9.  Each such notice (A) shall
describe  the  manner  and  circumstances of the proposed transfer in sufficient
detail to enable counsel to render the opinions referred to below, and (B) shall
designate  counsel  for  the  holder  giving  such  notice  (who  may  be  house


                                      -34-

counsel  for  such  holder).  The  holder  giving such notice will submit a copy
thereof  to  the  counsel  designated  in  such  notice and the Corporation will
promptly  submit  a  copy  thereof  to its counsel, and the following provisions
shall  apply:

(i)  If in the opinion of each such counsel the proposed transfer of such shares
of  Series  H  Convertible  Preferred Stock may be effected without registration
under  the Act, the Corporation will promptly notify the holder thereof and such
holder  shall  thereupon  be  entitled  to  transfer  such  shares  of  Series H
Convertible Preferred Stock in accordance with the terms of the notice delivered
by  such holder to the Corporation. Each share of Series H Convertible Preferred
Stock  or  certificate,  if any, issued upon or in connection with such transfer
shall bear the appropriate restrictive legend set forth in paragraph (a) of this
Section  9,  unless in the opinion of each such counsel such legend is no longer
required  to  insure compliance with the Act.  If for any reason counsel for the
Corporation  (after  having  been  furnished with the information required to be
furnished  by  this  paragraph  (b))  shall  fail  to  deliver an opinion of the
Corporation,  or  the  Corporation  shall  fail to notify such holder thereof as
aforesaid, within 20 days after counsel for such holder shall have delivered its
opinion  to  such holder (with a copy to the Corporation), then for all purposes
of  this  Designation the opinion of counsel for the Corporation shall be deemed
to be the same as the opinion of counsel for such holder.

(ii)  If  in the opinion of either or both of such counsel the proposed transfer
of  such  shares  of  Series  H  Convertible Preferred Stock may not be effected
without  registration under the Act, the Corporation will promptly so notify the
holder thereof and thereafter such holder shall not be entitled to transfer such
share  of Series H Convertible Preferred Stock until receipt of a further notice
from  the  Corporation  under  subparagraph  (i)  above.

(c)       Proposed Transfer to Institutions. Notwithstanding the foregoing, any
           ---------------------------------
holder  of such share of Series H Convertible Preferred Stock shall be permitted
to  transfer any such share of Series H Convertible Preferred Stock to a limited
number of institutional investors, provided that:

(i)  Each  such holder represents in writing that it is acquiring such shares of
Series  H  Convertible Preferred Stock for investment and not with a view to the
distribution  thereof  (subject,  however,  to  any  requirement of law that the
disposition  thereof  shall  at  all  times  be  within  the  control  of  such
transferee);

(ii)  Each  such holder agrees in writing to be bound by all the restrictions on
transfer  of  such  shares  of Series H Convertible Preferred Stock contained in
this  Section  9;  and

(iii) Such holder delivers to the Corporation an opinion of counsel who shall be
satisfactory  to  counsel for the Corporation, stating that such transfer may be
effected without registration under the Act.

10.    Status of Acquired  Shares.  Shares  of  Series  H  Convertible Preferred
       --------------------------
Stock  redeemed  by  the  Corporation  pursuant  to  Section  6,  received  upon
conversion pursuant to Section 6 or 7 otherwise acquired by the Corporation will
be  restored to the status of authorized but unissued shares of Preferred Stock,
without  designation as to class and may thereafter be issued, but not as shares
of  Series  H  Convertible  Preferred  Stock.

11.    Preemptive  Rights.  The  Series  H  Convertible  Preferred  Stock is not
       ------------------
entitled  to  any preemptive or subscription rights in respect of any securities
of  the  Corporation.

12.    Severability  of  Provisions.  Whenever  possible,  each provision hereof
       ---------------------------
shall  be  interpreted in a manner as to be effective and valid under applicable
law,  but  if  any provision hereof is held to be prohibited by or invalid under
applicable  law,  such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely affecting
the  remaining  provisions  hereof.  If a court of competent jurisdiction should
determine  that  a provision hereof would be valid or enforceable if a period of
time  were  extended  or  shortened or a particular percentage were increased or
decreased,  then such court may make such change as shall be necessary to render
the provision in question effective and valid under applicable law.


                                      -35-

                                    APPENDIX


THIS  PROXY  IS  SOLICITED  ON  BEHALF  OF THE BOARD OF DIRECTORS FOR THE ANNUAL
MEETING  ON  APRIL  27,  2004

The undersigned stockholder of ATSI Communications, Inc., a Delaware corporation
(the  "Company"),  hereby appoints Arthur L. Smith and Kathleen Keller, and each
of  them,  as Proxies, each with the power to appoint his or her substitute, and
hereby  authorizes  them  to represent and to vote, as designated below, all the
shares  of  the  Company's  common stock that the undersigned may be entitled to
vote at the Annual Meeting of Stockholders to be held on April 27, 2004, and any
adjournment  thereof,  with  all  powers  that  the undersigned would possess if
personally  present.

THIS  PROXY  SHALL  BE  VOTED  IN ACCORDANCE WITH THE INSTRUCTIONS MARKED ON THE
REVERSE SIDE HEREOF.  IF NO CHOICE IS MARKED, THE UNDERSIGNED GRANTS THE PROXIES
DISCRETIONARY  AUTHORITY  WITH  RESPECT  TO  THE ELECTION OF DIRECTORS, PROPOSAL
NUMBER  2 AND PROPOSAL NUMBER 3.  UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE
VOTED  FOR THE ELECTION OF ALL NOMINEES LISTED ON THE REVERSE SIDE, FOR PROPOSAL
NUMBER 2, AND FOR PROPOSAL NUMBER 3.

Any  proxy  heretofore  given  by  the undersigned with respect to such stock is
hereby  revoked.  Receipt  of  the Notice of the Annual Meeting, Proxy Statement
and Annual Report to Stockholders is hereby acknowledged.

Please  MARK,  SIGN,  DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.

[_]     NEW  ADDRESS:
        ______________________________________________________
        ______________________________________________________
        ______________________________________________________

[_]     CHECK HERE FOR  ADDRESS  CHANGE  AND  SEE  REVERSE

[_]     CHECK HERE FOR  CONSENT  TO ELECTRONIC COMMUNICATIONS VIA THE INTERNET

By  checking  the  box  above,  I consent to future access to the Annual Report,
Proxy  Statements,  prospectuses and other communications electronically via the
Internet.  I  understand  that  the  Company  may  no  longer distribute printed
materials  to  me  for  any  future  stockholder  meeting  until such consent is
revoked.  I  understand  that  I may revoke my consent at any time by contacting
the Company's transfer agent, American Stock Transfer & Trust Company, New York,
New  York  and  that  costs  normally associated with electronic access, such as
usage  and  telephone  charges,  will  be  my  responsibility.

continued and to be signed on reverse side




1.     ELECTION  OF  DIRECTORS

  [_]  FOR all nominees listed below
  [_]  WITHHOLD all nominees listed below

  Nominees:    Murray R. Nye
               Richard C. Benkendorf

  [_]  Place an "X" in this box to vote for all nominees listed above except the
       nominees written below.

  ______________________________

2.   PROPOSAL  TO APPROVE THE APPOINTMENT OF MALONE AND BAILEY, PLLC AS AUDITORS
     OF THE COMPANY FOR THE FISCAL YEAR ENDING JULY 31, 2004.

     [_]  FOR            [_]  AGAINST         [_]  ABSTAIN

3.   PROPOSAL TO APPROVE THE RE-INCORPORATION OF THE COMPANY IN NEVADA BY MERGER
     WITH AND INTO ITS WHOLLY OWNED SUBSIDIARY.

     [_]  FOR            [_]  AGAINST         [_]  ABSTAIN

4.   IN  THEIR  DISCRETION,  THE  PROXIES ARE AUTHORIZED TO VOTE UPON ANY MATTER
     THAT  THE  COMPANY  DID NOT HAVE NOTICE ON FEBRUARY 8, 2004, AND SUCH OTHER
     BUSINESS  AS  MAY  PROPERLY  COME  BEFORE  THE  MEETING.


Signature  ________________________  Signature  _____________________________

Date  ___________________________

Please sign exactly as name appears above.
When shares are held by joint tenants, both should sign.
When signing as attorney, as executor, administrator, trustee or guardian,
please give full title as such.
If a corporation, please sign in full corporate name by President or other
authorized officer.
If a partnership, please sign in partnership name by authorized person.