EXHIBIT 10.3


                               SECURITY AGREEMENT


      THIS SECURITY AGREEMENT (the "Agreement"), is entered into and made
effective as of August 3, 2005, by and between VOIP, INC. (the "Company") and
WQN, INC. (the "Secured Party").

      WHEREAS, the Company shall issue to the Secured Party a secured promissory
note in the principal amount of Three Million Seven Hundred Thousand
($3,700,000) (the "Purchase Note") and that certain promissory note, in the
principal amount of $1,000,000 (the "Bridge Note," together with the Purchase
Note, the "Notes"); and

      WHEREAS, to induce the Secured Party to enter into the Notes, the Company
hereby grants to the Secured Party a security interest in and to all of the
assets of the Company until the satisfaction of the Obligations (as defined
herein).

      NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein contained, and for other good and valuable consideration, the adequacy
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:

                                   ARTICLE 1.

                         DEFINITIONS AND INTERPRETATIONS
                         -------------------------------

      Section 1.1 Recitals.

      The above recitals are true and correct and are incorporated herein, in
their entirety, by this reference.

      Section 1.2 Interpretations.

      Nothing herein expressed or implied is intended or shall be construed to
confer upon any person other than the Secured Party any right, remedy or claim
under or by reason hereof.

      Section 1.3 Obligations Secured.

      The obligations secured hereby are any and all obligations of the Company
now existing or hereinafter incurred to the Secured Party, whether oral or
written and whether arising before, on or after the date hereof including,
without limitation, those obligations of the Company to the Secured Party under
this Agreement, the Notes and that certain Asset Purchase Agreement, by and
between the Company and the Secured Party, dated the date hereof (the "Asset
Purchase Agreement"), and any other amounts now or hereafter owed to the Secured
Party by the Company thereunder or hereunder (collectively, the "Obligations").
This Agreement, the Notes and the Asset Purchase Agreement are collectively
referred to herein as the "Transaction Documents."


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                                   ARTICLE 2.

                 PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
                      AND TERMINATION OF SECURITY INTEREST
                      ------------------------------------

      Section 2.1 Pledged Property.

            (a) The Company hereby pledges to the Secured Party, and creates in
the Secured Party for its benefit, a security interest in and to all of the
assets of the Company and the products thereof and the proceeds of all such
items (collectively, the "Pledged Property") for such time until the Obligations
are paid in full.

            (b) Simultaneously with the execution and delivery of this
Agreement, the Company shall make, execute, acknowledge, file, record and
deliver to the Secured Party any documents reasonably requested by the Secured
Party to perfect its security interest in the Pledged Property. Simultaneously
with the execution and delivery of this Agreement, the Company shall make,
execute, acknowledge and deliver to the Secured Party such documents and
instruments, including, without limitation, financing statements, certificates,
affidavits and forms as may, in the Secured Party's reasonable judgment, be
necessary to effectuate, complete or perfect, or to continue and preserve, the
security interest of the Secured Party in the Pledged Property, and the Secured
Party shall hold such documents and instruments as secured party, subject to the
terms and conditions contained herein.

      Section 2.2 Rights; Interests; Etc.

            (a) So long as no Event of Default (as defined in each of the Notes)
under either of the Notes shall have occurred and be continuing:

                  (i) the Company shall be entitled to exercise any and all
rights pertaining to the Pledged Property or any part thereof for any purpose
not inconsistent with the terms hereof; and

                  (ii) the Company shall be entitled to receive and retain any
and all payments paid or made in respect of the Pledged Property.

            (b) Upon the occurrence and during the continuance of an Event of
Default:

                  (i) All rights of the Company to exercise the rights which it
would otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and
to receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party, who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Property
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Property pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and


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                  (ii) All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or

                  (iii) The Secured Party in its sole discretion shall be
authorized to sell any or all of the Pledged Property at public or private sale
in order to recoup all of the outstanding principal plus accrued interest owed
pursuant to the Notes as described herein.

      Section 2.3 Subordination. Secured Party acknowledges and agrees that its
security interest in the Pledged Property shall be subordinate to securities
interests in existence as of the date hereof, including the security interests
in the Pledged Property in favor of Cedar Boulevard Lease Funding, LLC
("Cedar"), and agrees that Secured Party shall subordinate its security interest
in the Pledged Property, to the security interests of any future Senior Creditor
(as defined below) to the extent such security interests secure Senior Debt (as
defined below. For purposes of this Agreement (i) "Senior Creditors" shall mean
a bank, insurance company, pension fund, or accredited investor, or a syndicate
of such institutional lenders that provides Senior Debt financing to the Company
and its subsidiaries, including any party refinancing the obligations of the
Company and its subsidiaries to Cedar; provided, that Senior Creditor shall not
include any officer, director, or insider of the Company or any of its
subsidiaries, or any affiliate of the foregoing, except upon the express written
consent of Secured Party, (ii) "Senior Debt" shall mean any and all indebtedness
and obligations for borrowed money (including principal, premium (if any),
interest, fees, charges, expenses, costs, professional fees and expenses, and
reimbursement obligations) at any time owing by the Company to Senior Creditor
under the Senior Loan Documents (as defined below), including such amounts as
may accrue or be incurred before or after default or workout or the commencement
of any liquidation, dissolution, bankruptcy, receivership or reorganization by
or against Borrower and any obligations of the Company and its subsidiaries
incurred in connection with refinancing the obligations to Cedar; provided, that
Senior Debt shall not include debt exceeding ten million and No/100 Dollars
($10,000,000.00) outstanding at any one time, and (iii) "Senior Loan Documents"
means a loan agreement between Borrower and Senior Creditor and any other
agreement, security agreement, document, promissory note, UCC financing
statement, or instrument executed by Borrower in favor of Senior Creditor
pursuant to or in connection with the Senior Debt, as the same may from time to
time be amended, modified, supplemented, extended, renewed, restated or
replaced.

                                   ARTICLE 3.

                          ATTORNEY-IN-FACT; PERFORMANCE

      Section 3.1 Secured Party Appointed Attorney-In-Fact.

      Upon the occurrence of an Event of Default, the Company hereby appoints
the Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party's discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Property or any part thereof and to give full discharge
for the same. The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine. To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property to make
payments directly to the Secured Party.


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      Section 3.2 Secured Party May Perform.

      If the Company fails to perform any agreement contained herein, the
Secured Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 7.3.

                                   ARTICLE 4.

                         REPRESENTATIONS AND WARRANTIES

      The Company represents and warrants to the Secured Party that, in addition
to the representations and warranties in the Transaction Documents, the Company
warrants and represents that it is the legal and beneficial owner of the Pledged
Property free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Agreement.

                                   ARTICLE 5.

                                DEFAULT; REMEDIES

      Section 5.1 Default and Remedies.

            (a) If an Event of Default described in Section 3.1 of the Purchase
Note or Section 6(a) of the Bridge Note occurs, then in each such case the
Secured Party may declare the Obligations to be due and payable immediately, by
a notice in writing to the Company, and upon any such declaration, the
Obligations shall become immediately due and payable and the Secured Party can
immediately exercise any of its rights and remedies pursuant to the Transaction
Documents or under any applicable law. If an Event of Default described in
Sections 3.2. 3.3 or 3.4 of the Purchase Note or under Section 6(c) of the
Bridge Note occurs and is continuing for the period set forth therein, then the
Obligations shall automatically become immediately due and payable without
declaration or other act on the part of the Secured Party and the Secured Party
can immediately exercise any of its rights and remedies pursuant to the
Transaction Documents and under any applicable law.

            (b) Upon the occurrence of an Event of Default, the Secured Party
shall be entitled to (i) receive all distributions with respect to the Pledged
Property, (ii) cause the Pledged Property to be transferred into the name of the
Secured Party or its nominee, (iii) dispose of the Pledged Property, (iv)
realize upon any and all rights in the Pledged Property then held by the Secured
Party, and (v) exercise any of its rights and remedies pursuant to the
Transaction Documents and any applicable law.


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      Section 5.2 Method of Realizing Upon the Pledged Property; Other Remedies.

      Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party's right to realize upon the Pledged Property:

            (a) Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Company ten (10) days' prior written notice of the time and
place or of the time after which a private sale may be made), which notice
period is hereby agreed to be commercially reasonable. At any sale or sales of
the Pledged Property, the Company may bid for and purchase the whole or any part
of the Pledged Property and, upon compliance with the terms of such sale, may
hold, exploit and dispose of the same without further accountability to the
Secured Party. The Company will execute and deliver, or cause to be executed and
delivered, such instruments, documents, assignments, waivers, certificates, and
affidavits and supply or cause to be supplied such further information and take
such further action as the Secured Party reasonably shall require in connection
with any such sale.

            (b) Any cash being held by the Secured Party as Pledged Property and
all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Property shall be applied as determined by the Secured Party.

            (c) In addition to all of the rights and remedies which the Secured
Party may have pursuant to this Agreement, the Secured Party shall have all of
the rights and remedies provided by law, including, without limitation, those
under the Uniform Commercial Code.

                  (i) If the Company fails to pay such amounts due upon the
occurrence of an Event of Default which is continuing, then the Secured Party
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company and collect the monies adjudged or decreed
to be payable in the manner provided by law out of the property of Company,
wherever situated.

                  (ii) The Company agrees that it shall be liable for any
reasonable fees, expenses and costs incurred by the Secured Party in connection
with enforcement, collection and preservation of the Transaction Documents,
including, without limitation, reasonable legal fees and expenses, and such
amounts shall be deemed included as Obligations secured hereby and payable as
set forth in Section 8.3 hereof.

      Section 5.3 Proofs of Claim.

      In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Company or the property of the Company or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations) shall be
entitled and empowered, by intervention in such proceeding or otherwise:


<PAGE>


            (a) to file and prove a claim for the whole amount of the
Obligations and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Secured Party (including any claim
for the reasonable legal fees and expenses and other expenses paid or incurred
by the Secured Party permitted hereunder and of the Secured Party allowed in
such judicial proceeding); and

            (b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by the Secured Party to
make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments directed to the Secured Party, to
pay to the Secured Party any amounts for expenses due it hereunder.

      Section 5.4 Duties Regarding Pledged Property.

      The Secured Party shall have no duty as to the collection or protection of
the Pledged Property or any income thereon or as to the preservation of any
rights pertaining thereto, beyond the safe custody and reasonable care of any of
the Pledged Property actually in the Secured Party's possession.

                                   ARTICLE 6.

                               NEGATIVE COVENANTS

      The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing, directly or indirectly
make, create, incur, assume or permit to exist any assignment, transfer, pledge,
mortgage, security interest or other lien or encumbrance of any nature in, to or
against any part of the Pledged Property or of the Company's capital stock, or
offer or agree to do so, or own or acquire or agree to acquire any asset or
property of any character subject to any of the foregoing encumbrances
(including any conditional sale contract or other title retention agreement), or
assign, pledge or in any way transfer or encumber its right to receive any
income or other distribution or proceeds from any part of the Pledged Property
or the Company's capital stock; or enter into any sale-leaseback financing
respecting any part of the Pledged Property as lessee, or cause or assist the
inception or continuation of any of the foregoing.

                                   ARTICLE 7.

                                  MISCELLANEOUS

      Section 7.1 Notices.

      All notices or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and shall be considered as duly
given on: (a) the date of delivery, if delivered in person, by nationally
recognized overnight delivery service or (b) five (5) days after mailing if
mailed from within the continental United States by certified mail, return
receipt requested to the party entitled to receive the same:


<PAGE>

      If to the Secured Party:      WQN, Inc.
                                    14911 Quorum Drive, Suite 140
                                    Dallas, TX 75254
                                    Attention:
                                    Telecopy No.:
                                    Telephone No.:

      with a copy to:

                                    Patton Boggs LLP
                                    2100 Ross Avenue  Suite 3000
                                    Dallas, Texas  75201
                                    Attention:  Charles Miller, Esq.
                                                --------------------
                                    Telecopy No.:  214-758-1550
                                    Telephone No.: 214-758-1500


      and if to the Company:        VoIP, Inc.
                                    12330 SW 53rd Street, Suite 712
                                    Fort Lauderdale, FL  33330
                                    Attention:  Steven Ivester
                                    Telephone:  (954) 434-2000
                                    Facsimile:  (954) 434-4454

      with a copy to:               Andrews Kurth LLP
                                    1717 Main Street, Suite 3700
                                    Dallas, TX  75201
                                    Attention:  Ronald L. Brown, Esq.
                                    Telephone:  (214) 659-4469
                                    Facsimile:  (214) 659-4819

      Any party may change its address by giving notice to the other party
stating its new address. Commencing on the tenth (10th) day after the giving of
such notice, such newly designated address shall be such party's address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.

      Section 7.2 Severability.

      If any provision of this Agreement shall be held invalid or unenforceable,
such invalidity or unenforceability shall attach only to such provision and
shall not in any manner affect or render invalid or unenforceable any other
severable provision of this Agreement, and this Agreement shall be carried out
as if any such invalid or unenforceable provision were not contained herein.


<PAGE>


      Section 7.3 Expenses.

      In the event of an Event of Default, the Company will pay to the Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel, which the Secured Party may incur in
connection with: (i) the custody or preservation of, or the sale, collection
from, or other realization upon, any of the Pledged Property; (ii) the exercise
or enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.

      Section 7.4 Waivers, Amendments, Etc.

      The Secured Party's delay or failure at any time or times hereafter to
require strict performance by Company of any undertakings, agreements or
covenants shall not waiver, affect, or diminish any right of the Secured Party
under this Agreement to demand strict compliance and performance herewith. Any
waiver by the Secured Party of any Event of Default shall not waive or affect
any other Event of Default, whether such Event of Default is prior or subsequent
thereto and whether of the same or a different type. None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.

      Section 7.5 Continuing Security Interest.

      This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations; and (ii) be binding upon the Company and its successors and
heirs and (iii) inure to the benefit of the Secured Party and its successors and
assigns. Upon the payment or satisfaction in full of the Obligations, the
Company shall be entitled to the return, at its expense, of such of the Pledged
Property as shall not have been sold in accordance with Section 5.2 hereof or
otherwise applied pursuant to the terms hereof.

      Section 7.6 Independent Representation.

      Each party hereto acknowledges and agrees that it has received or has had
the opportunity to receive independent legal counsel of its own choice and that
it has been sufficiently apprised of its rights and responsibilities with regard
to the substance of this Agreement.

      Section 7.7 Applicable Law: Jurisdiction.

      This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Texas without regard to the principles of conflict of laws.
The parties further agree that any action between them shall be heard in Dallas
County, Texas.


<PAGE>


      Section 7.8 Waiver of Jury Trial.

      AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT
AND TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY
WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO
THIS AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.

      Section 7.9 Entire Agreement.

      This Agreement constitutes the entire agreement among the parties and
supersedes any prior agreement or understanding among them with respect to the
subject matter hereof.

      Section 7.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument.

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      IN WITNESS WHEREOF, the parties hereto have executed this Security
Agreement as of the date first above written.

                                   VOIP, INC.


                                   By:    /s/  Steven Ivester
                                      ---------------------------------------
                                   Name:  Steven Ivester
                                        -------------------------------------
                                   Title: Chief Executive Officer
                                         ------------------------------------


                                   WQN, INC.


                                   By:    /s/ B. Michael Adler
                                      ---------------------------------------
                                   Name:  B. Michael Adler
                                        -------------------------------------
                                   Title: CEO
                                         ------------------------------------