SOURCE: ATSI Communications, Inc.

October 31, 2006 09:43 ET

ATSI Annual Revenues Increase 144%

Record Revenue, Positive EBITDA and Operating Income Achieved in 4th Quarter -- Expects Continued Improvement in Fiscal 2007

SAN ANTONIO, TX -- (MARKET WIRE) -- October 31, 2006 -- ATSI Communications, Inc. (OTCBB: ATSX) today announced results for the three months and fiscal year ended July 31, 2006. Revenues for the 4th quarter totaled $5,335,000, a 188% increase over the previous year's 4th quarter ended July 31, 2005. Revenues for the 4th quarter exceeded the immediately preceding quarter ended April 30, 2006 by $1.24 million and resulted in the 8th consecutive quarter of record revenues for the Company since ATSI's reincorporation in May 2004. In addition, the Company reached a key profitability milestone by producing EBITDA of $22,000 and Operating Income of $2,000 for the three months ended July 31, 2006. Adjusted for non-cash expenses, the Company produced EBITDA of $134,000 for the same period.

For its fiscal year ended July 31, 2006, ATSI reported revenues of $14.7 million, a 144% increase over revenues of $6 million for the previous fiscal year ended July 31, 2005. Net loss to common stockholders for the year ended July 31, 2006 was $12,000 vs. net income to common stockholders of $9.7 million for the Company's previous year ended July 31, 2005 that included a non-cash, one-time gain of $12.1 million on disposal of an investment. In addition, the Company reported a key balance sheet improvement of $2.7 million for FY2006 as a result of reclassifying certain current liabilities to stockholder's equity during the 4th quarter.

The Company continued to meet key corporate objectives while successfully reaching internal milestones of its business model. Management believes the accomplishments during FY2006 have further strengthened the Company's foundation, thus facilitating future improvement in shareholder value.

The following is a summary of the significant achievements for the year:

--  4 consecutive quarters of record revenue since the Company's
    reincorporation:
         + 176% growth in 1st quarter
         +  94% growth in 2nd quarter
         + 128% growth in 3rd quarter
         + 188% growth in 4th quarter

--  Achieving positive cash flow and operational profitability in the 4th
    quarter

--  Net reduction of $2.1 million in liabilities

--  Formation of new subsidiary, Digerati Networks, to showcase ATSI's
    growing VoIP business

--  Expansion of Company's VoIP network by 65% with NexTone Communications
    to support future products and growth

Arthur L. Smith, CEO of ATSI, stated, "We had an incredible year that ended with the Company producing record revenues, positive EBITDA, and positive Operating Income for the 4th quarter ended July 31, 2006. This trend has continued into the 1st quarter of our current fiscal year with revenues expected to reach $6.4 million and resulting in the 9th consecutive quarter of record revenues since our reincorporation. We also anticipate additional balance sheet improvements over the next 2 quarters." Mr. Smith added, "I commend our team for successfully executing on every corporate and operational objective we set at the beginning of FY2006. Our operations team, led by Ruben Caraveo, did a tremendous job by exceeding VoIP revenue expectations during every quarter of FY2006. Although we fully expect FY2007 to be a record year in terms of revenue, we are shifting efforts towards improving our gross profit while maintaining SG&A at or near current levels. The anticipated result is increased cash flow from operations that will subsequently increase our cash reserves, improve our balance sheet, and enhance our ability to internally finance our growth."

Excluding non-cash items, net loss to common stockholders for the year ended July 31, 2006 was $63,000 vs. a net loss to common stockholders of $587,000 for the previous year ended July 31, 2005. For FY2006 the Company incurred $443,000 in non-cash compensation and warrant expense. Additional non-cash items incurred during the year include depreciation and amortization expense, interest expense, and preferred dividend expense. The Company also realized a non-cash gain of $1.7 million on disposal of operations that were discontinued.

Net loss before non-cash items is not a term defined by generally accepted accounting principles (GAAP) and may not be comparable to other similarly titled measurements used by other companies. Such non-GAAP measures should be considered in addition to, and not as a substitute for, performance measures calculated in accordance with GAAP. The accompanying table includes a detailed reconciliation of net loss reported in accordance with GAAP to net loss before non-cash items.

ATSI Communications, Inc. operates through its two wholly owned subsidiaries, Digerati Networks, Inc. and Telefamilia Communications, Inc. Digerati Networks, Inc. is a premier global VoIP carrier serving rapidly expanding markets in Asia, Europe, the Middle East, and Latin America, with an emphasis on Mexico. Through Digerati's partnerships with established foreign carriers and network operators, interconnection and service agreements, and a NexTone powered VoIP network, ATSI believes it has clear advantages over its competition. Telefamilia Communications provides specialized retail communication services that includes VoIP services to the high-growth Hispanic market in the United States. ATSI also owns a minority interest of a subsidiary in Mexico, ATSI Comunicaciones, S.A. de C.V., which operates under a 30-year government issued telecommunications license.

Except for the historical information contained herein, the matters discussed in this release include certain forward-looking statements, which are intended to be covered by the safe harbor provided by Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have identified forward-looking statements by using words such as "expect," "believe," "should," "may," "intend," and "anticipate" or words of similar import. Those statements include, but may not be limited to, all statements regarding our management's intent, belief and expectations, such as statements concerning our future and our operating and growth strategy. Although we believe our expectations are reasonable, our operations involve a number of risks and uncertainties, and these statements may turn out not to be true. These risks and uncertainties include the assumption that we will continue as a going business; our inability to predict or anticipate changes in regulations or the actions of domestic and foreign governments; and the continued availability of funds in amounts and on acceptable terms. More detailed information about ATSI Communications, Inc. is available in the Company's public filings with the Securities and Exchange Commission. We believe that the assumptions underlying the forward-looking statements included in this release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by us or any other person that our objectives and plans will be achieved. All forward-looking statements made in this release are based on information presently available to our management. We assume no obligation to update any forward-looking statements, except as required by law.

                       ATSI COMMUNICATIONS, INC.
                           AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF OPERATIONS
                (In thousands, except per share amounts)

                                                   Years Ended July 31,
                                               ------------   ------------
                                                   2006           2005
                                               ------------   ------------
OPERATING REVENUES:
  Carrier services                                  $14,674         $5,782
  Network services                                       22            229
                                               ------------   ------------

  Total operating revenues                           14,696          6,011

OPERATING EXPENSES:
  Cost of services (exclusive of depreciation
   and amortization, shown below)                    13,869          5,664
  Selling, general and administrative expense
   (exclusive of legal and professional fees,
   non-cash stock compensation to employees
   and warrants for services, shown below)              695            517
  Legal and professional fees                           195            417
  Non-cash issuance of common stock and
   warrants for services                                176            618
  Non-cash stock-based compensation,
   employees                                            267            474
  Bad debt expense                                        -              4
  Depreciation and amortization expense                  92            112
                                               ------------   ------------
  Total operating expenses                           15,294          7,806
                                               ------------   ------------


OPERATING (LOSS)                                       (598)        (1,795)
                                               ------------   ------------

OTHER INCOME (EXPENSE):
  Other income                                            -             27
  Gain on disposal of investment                          -         12,104
  Loss on derivative instrument liabilities              (6)          (287)
  Debt forgiveness income                                50            460
  Interest expense                                     (151)          (102)
                                               ------------   ------------
  Total other income (expense), net                    (107)        12,202
                                               ------------   ------------

NET LOSS FROM CONTINUING OPERATIONS                    (705)        10,407
                                               ------------   ------------

DISCONTINUED OPERATIONS
  Gain on disposal of discontinued operations         1,652              -
                                               ------------   ------------
NET INCOME FROM DISCONTINUED OPERATIONS               1,652              -
                                               ------------   ------------

NET INCOME (LOSS):                                     $947        $10,407
                                               ============   ============
LESS: PREFERRED DIVIDENDS                              (959)          (639)
                                               ------------   ------------

NET INCOME (LOSS) TO COMMON  STOCKHOLDERS              ($12)        $9,768
                                               ============   ============

BASIC INCOME (LOSS) PER SHARE                         $0.00          $1.37
                                               ============   ============
  From continuing operations                         ($0.12)         $1.37
  From discontinued operations                        $0.12          $0.00

DILUTED INCOME (LOSS) PER SHARE                       $0.00          $0.42
                                               ============   ============
  From continuing operations                         ($0.12)         $0.42
  From discontinued operations                        $0.12          $0.00

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING       13,516,342      7,128,847

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

NET INCOME (LOSS) TO COMMON STOCKHOLDERS:              ($12)        $9,768
                                               ------------   ------------
EXCLUDING NON-CASH ITEMS:

    Non-cash issuance of common stock and
     warrants for services                              176            618
    Non-cash stock-based compensation,
     employees                                          267            474
    Bad debt                                              -              4
    Depreciation and amortization                        92            112

    Other Income                                          -             27
    Gain on disposal of investment                        -         12,104
    Loss on derivative instrument liabilities            (6)          (287)
    Debt forgiveness income                              50            460
    Interest expense                                   (151)          (102)
    Gain on disposal of discontinued
     operations                                       1,652              -
    Preferred dividends                                (959)          (639)

                                               ------------   ------------
NET INCOME (LOSS) TO COMMON STOCKHOLDERS
 EXCLUDING NON-CASH ITEMS:                             ($63)         ($587)
                                               ------------   ------------

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