UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-QSB



x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

                For the quarterly period ended September 30, 2005

                                       OR

o TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934


For the transition period from ________ to ________


                         Commission file number 0-27751

                                    WQN, INC.


              Delaware                                   75-2838415
              --------                                   ----------
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
    ncorporation or organization)


               14911 Quorum Drive, Suite 140, Dallas, Texas 75254
               --------------------------------------------------
                    (Address of principal executive offices)

                                 (972) 361-1980
                                 --------------
                (Issuer's telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                                                                  YES  x  NO  o

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                                                  Yes  o  No  x


At October 31, 2005, the registrant had outstanding 6,873,062 shares of par
value $.01 common stock.

Transitional Small Business Disclosure Format:
                                                                  Yes  o  No  x




<PAGE>

TABLE OF CONTENTS



PART I--FINANCIAL INFORMATION

    ITEM 1. FINANCIAL STATEMENTS.

    ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

    ITEM 3. CONTROLS AND PROCEDURES

PART II-OTHER INFORMATION

    ITEM 1. LEGAL PROCEEDINGS

    ITEM 2. CHANGES IN SECURITIES

    ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    ITEM 5. OTHER INFORMATION

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

    SIGNATURES

         Certification of CEO Pursuant to Section 302
         Certification of CFO Pursuant to Section 302
         Certification of CEO Pursuant to Section 906
         Certification of CFO Pursuant to Section 906



                                       2
<PAGE>

<TABLE>

<CAPTION>

                                    WQN, INC.

                          PART I--FINANCIAL INFORMATION

                          ITEM 1. FINANCIAL STATEMENTS.

                                    WQN, INC.

                           CONSOLIDATED BALANCE SHEETS


<S>                                                                                        <C>                  <C>
                                                                                           September 30,         December 31,
                                                                                               2005                  2004
                                                                                          ----------------    ------------------
Current assets:                                                                               (unaudited)
     Cash and cash equivalents......................................................          $ 6,767,768         $  9,942,280
     Investment in partnership......................................................            2,547,702            2,944,243
     Accounts receivable, net.......................................................              790,984              874,219
     Current portion of notes receivable and accrued interest.......................            1,299,025            2,408,679
     Prepaid expenses and other current assets......................................            1,305,586              806,068
                                                                                          ----------------    ------------------
Total current assets................................................................           12,711,065           16,975,489

Property and equipment, net.........................................................              642,891              597,522
Note receivable.....................................................................                    0              204,167
Other assets, net...................................................................              687,655              972,794
Investment in Seaview Capital.......................................................            1,000,000                    -
                                                                                          ----------------    ------------------
Total assets........................................................................         $ 15,041,611        $  18,749,972
                                                                                          ================    ==================


Current liabilities:
     Accounts payable...............................................................         $  1,345,333         $  1,481,188
     Accrued expenses...............................................................              437,187              457,459
     Deferred revenue...............................................................              395,332              444,988
       Promissory note..............................................................              300,000              300,000
                                                                                          ----------------    ------------------
Total current liabilities...........................................................            2,477,851            2,683,635

Commitments and contingencies.......................................................

Stockholders' equity:
     Preferred stock, par value $0.01 per share;
          Authorized shares--10,000,000; none issued and
        outstanding ................................................................              -                   -
     Common stock, par value $0.01 per share;
          Authorized shares--50,000,000; issued and
        outstanding shares-- 6,878,062 at September 30, 2005
        and 6,830,062 at December 31, 2004..........................................               68,781               68,301
     Additional capital.............................................................           43,202,359           43,180,859
     Accumulated deficit............................................................          (30,707,381)         (27,182,823)
                                                                                          ----------------    -----------------
Total stockholders' equity..........................................................           12,563,760           16,066,337
                                                                                          ----------------    -----------------
Total liabilities and stockholders' equity..........................................         $ 15,041,611        $  18,749,972
                                                                                          ================    =================

The accompanying notes are an integral part of these condensed consolidated financial statements.


</TABLE>

                                       3
<PAGE>

<TABLE>

<CAPTION>


                                    WQN, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)



<S>                                                  <C>                 <C>                 <C>                  <C>
                                                       Three months ended September 30,         Nine months ended September 30,
                                                     -----------------------------------     -------------------------------------
                                                          2005                2004                2005                 2004
                                                     ----------------    ---------------     ----------------     ----------------
Retail telephony revenue...........................      $ 2,666,318       $2,254,098         $  8,008,266          $ 6,982,011
Wholesale telephony and other revenue..............        5,983,632        1,346,122           16,225,048
                                                     ----------------    ---------------     ----------------     ----------------
   Total revenue...................................        8,649,950        3,600,220           24,233,314
                                                                                                                      8,399,938
Cost of revenue....................................        8,225,994        3,133,505           23,157,031            6,926,839
                                                     ----------------    ---------------     ----------------     ----------------
   Gross profit....................................          423,956          466,715            1,076,282            1,473,099
Operating expenses:
   Selling, general and administrative.............        1,424,581          814,071            3,854,632            2,582,246
   Merger expenses.................................                -                                     -            1,290,173
                                                                               82,089
   Depreciation and amortization...................          158,067          212,134              497,903              575,024
                                                     ----------------    ---------------     ----------------     ----------------
       Total operating expenses....................        1,582,648        1,108,294            4,352,535            4,447,443
                                                     ----------------    ---------------     ----------------     ----------------
Operating loss.....................................       (1,158,692)        (641,579)          (3,276,252)          (2,974,344)
Interest income, net...............................                            87,684              148,236              202,590
                                                            43,685
Income (loss) from partnership investment..........            824                  -             (396,541)                    -
                                                     ----------------    ---------------     ----------------     ----------------
   Loss from continuing operations ................       (1,114,182)        (553,895)          (3,524,557)          (2,771,754)
   Gain from discontinued operations ..............                                                                     598,942
                                                                   -          755,542                   -
                                                     ----------------    ---------------     ----------------     ----------------
Net income loss....................................  $    (1,114,182)      $  201,649          $(3,524,557)         $(2,172,812)
                                                     ================    ===============     ================     ================

Net loss per share - basic and diluted:
   Continuing operations...........................  $         (0.16)      $    (0.08)        $      (0.51)          $    (0.43)
   Discontinued operations ........................             -                 .11                   -                   .10
                                                     ----------------    ---------------     ----------------     ----------------
Net loss per share                                   $         (0.16)      $      .03         $      (0.51)          $    (0.33)
                                                     ================    ===============     ================     ================

Weighted average common shares  outstanding - basic
and diluted........................................        6,878,062        6,733,799            6,872,611            6,583,255
                                                     ================    ===============     ================     ================

The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>


                                       4
<PAGE>


<TABLE>

<CAPTION>

                                    WQN, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                   (UNAUDITED)

<S>                                      <C>                <C>                 <C>                <C>                 <C>
                                             Common              Stock            Additional          Accumulated
                                             Shares             Amount              Capital             Deficit            Total
                                         --------------     ---------------     -------------      ----------------    -------------

Balance at December 31, 2004                  6,830,062     $        68,301     $ 43,180,859       $   (27,182,823)    $ 16,066,337
  Exercise of employee stock options             48,000                 480           21,500                                 21,980
  Net loss                                            -                   -                -            (3,524,557)      (3,524,557)
                                         --------------     ---------------     -------------      ----------------    -------------
Balance at September 30, 2005                 6,878,062     $        68,781     $ 43,202,359       $   (30,707,380)    $  12,563,760
                                         ==============     ===============     =============      ================    =============


The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>




                                       5
<PAGE>

<TABLE>

<CAPTION>

                                    WQN, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<S>                                                                                       <C>                    <C>
                                                                                                Nine months ended September 30,
                                                                                          ------------------------------------------
                                                                                                    2005                  2004
                                                                                          -------------------    -------------------
Operating Activities

Net loss from continuing operations..................................................     $      (3,524,557)     $    (2,771,754)

Adjustments to reconcile net loss to net cash used in operating activities:
   Loss from discontinued operations.................................................                     -             (178,172)
   Depreciation and amortization.....................................................               497,903              682,321
   Loss on disposition of property and equipment and asset write-downs...............                     -               76,522
   Loss from investment in partnership...............................................               396,541                    -
   Changes in operating assets and liabilities:
     Accounts receivable.............................................................
                                                                                                     65,934              (28,592)
     Accounts payable and accrued expenses...........................................              (156,128)              98,237
     Deferred revenue................................................................
                                                                                                    (49,656)             131,813
     Other assets....................................................................
                                                                                                   (446,149)            (637,926)
                                                                                          -------------------    -------------------
Net cash used in operating activities................................................            (3,216,113)          (2,627,551)

Investing Activities
    Additions to property and equipment..............................................              (311,502)            (245,160)
    Payments received on note from the sale of subsidiary............................               262,500              851,868
    Payments from (loan to) Ntera Holdings, Inc. ....................................             2,068,622             (700,000)
     Loan to Voip, Inc. .............................................................            (1,000,000)              58,333
    Purchase of partnership interest ................................................            (1,000,000)          (2,000,000)
                                                                                          -------------------    -----------------
Net proceeds from (cash used in) investing activities................................                19,620           (2,034,959)

Financing Activities
    Proceeds from exercise of stock options..........................................                21,980            1,077,952

Increase (decrease) in cash and cash equivalents.....................................            (3,174,512)          (3,584,558)
Cash and cash equivalents at beginning of period.....................................             9,942,280           17,931,820
                                                                                          -------------------    -------------------
Cash and cash equivalents at end of period...........................................     $       6,767,768      $    14,347,262
                                                                                          ===================    ===================

Supplemental Disclosure of Cash Flow Information
   Interest paid.....................................................................     $           4,287      $           500
                                                                                          ===================    ===================

The accompanying notes are an integral part of these condensed consolidated financial statements.

</TABLE>


                                       6
<PAGE>

                                    WQN, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.   Basis of Presentation

     The accompanying unaudited condensed consolidated financial statements of
WQN, Inc. (formerly WorldQuest Networks, Inc.) and subsidiaries (collectively,
the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for annual financial statements. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included. The results for
the interim periods presented are not necessarily indicative of the results that
may be expected for any future period. The balance sheet at December 31, 2004
has been derived from the audited financial statements at that date but does not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
statements in this Form 10-QSB should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2004.

2.   Discontinued Operations

     In July 2004, the Company sold all of the outstanding capital stock of its
wholly-owned subsidiary buyindiaonline.com, Inc. ("Cash2India") to a private
company for approximately $1,552,000. The Cash2India business comprised the
Company's previously reported financial services segment and is accounted for as
a discontinued operation in the accompanying condensed consolidated financial
statements. Under the terms of the transaction, the Company received $852,000 in
cash, a promissory note for $700,000, and a warrant to purchase common stock in
the acquiring company. The cash payment included consideration for $352,000 in
working capital associated with Cash2India at the time of the sale. The
promissory note bears interest at 5% per annum, is secured by the capital stock
of Cash2India, and is to be repaid in twenty-four consecutive monthly payments
of $29,167 plus accrued interest. The balance of the promissory note and accrued
interest was $291,667 as of September 30, 2005. As a result of the transaction
the Company recorded gain on the disposition of Cash2India of approximately
$777,000 in the third quarter of 2004. The net gain/(loss) from discontinued
operations is comprised as follows:


                                Three months ended            Nine months ended
                                   September 30,                September 30,
                                ------------------------    --------------------
R                                        2004                       2004
                                ------------------------    --------------------
Revenue                               $ 40,294                     $ 340,027
Cost of revenue                        (15,898)                     (134,969)
                                       --------                     ---------
  Gross profit                          24,396                       205,058
Operating expenses                     (45,968)                     (383,230)
                                       --------                     ---------
  Net loss                             (21,572)                     (178,172)
  Gain on disposal                     777,114                       777,114
                                       --------                     ---------
Net gain/(loss) on
discontinued
operations                            $755,542                     $ 598,942
                                      ========                     =========





                                       7
<PAGE>

                                    WQN, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                                   (UNAUDITED)

3.   Earnings (Loss) Per Share

     Stock options and warrants convertible into 829,259 and 1,712,856 shares of
the Company's common stock at September 30, 2005 and 2004, respectively, are
excluded from the calculation of diluted earning per share because the Company
reported losses from continuing operations in those periods and their effect
would be antidilutive.

4.   Related Party Transactions


     B. Michael Adler holds a controlling interest in Eagle Venture Capital, LLC
("Eagle Venture") which owns approximately 2.6 million, 38%, of the outstanding
shares of common stock of our Company as of December 31, 2004. A consulting
company managed by one of the Company's directors holds warrants outstanding to
acquire 100,000 shares of the Company's common stock. The warrants have an
exercise price of $6.00 per share and expire in 2005.

     Mr. Hartman and Mr. Montoya are co-founders of SeaView Mezzanine Fund LP
("Seaview"), a private equity limited partnership. Pursuant to a subscription
agreement dated effective as of December 8, 2004, WQN committed to invest
$10,000,000 in SeaView and has invested $1,000,000, as a limited partner, as of
September 30, 2005. SeaView invests in mezzanine securities in a diversified
portfolio of small to mid-size companies. Robert Farmer and an affiliate of E.
Denton Jones hold a financial interest in the general partnership of SeaView.
The Company's investment is accounted for on the equity basis of accounting.

     WQN has entered into an employment agreement with Scott W. Hartman,
effective October 5, 2005. The Agreement provides that Mr. Hartman will be
appointed chief executive officer of WQN. The agreement will expire on the third
anniversary of its effective date. Under the agreement, Mr. Hartman will be
entitled to receive no salary but he will be granted options to purchase 220,000
shares of common stock of the Company and such other compensation as determined
by the board of directors or the Compensation Committee.

     WQN has entered into an employment agreement with David S. Montoya,
effective October 5, 2005. The Agreement provides that Mr. Montoya will be
appointed chief financial officer of WQN. The agreement will expire on the third
anniversary of its effective date. Under the agreement, Mr. Montoya will be
entitled to receive no salary but he will be granted options to purchase 220,000
shares of common stock of the Company and such other compensation as determined
by the board of directors or the Compensation Committee.

     WQN has entered into a management agreement, effective October 5, 2005,
with WQNI Consulting Group, LLC, a newly formed Delaware limited liability
company in which Scott W. Hartman, B. Michael Adler, E. Denton Jones and David
S. Montoya have a direct material interest, pursuant to which WQN would be
required to make payments in excess of $60,000.

     In November 2004, WQN invested $3 million in Cross Country Capital
Partners, L.P. ("Cross Country"), a partnership managed by an affiliate of E.
Denton Jones, a director of WQN. The majority of the partnership assets are to
be invested in private investments in public entities. The partnership
investments will take the form of common equity, preferred equity, convertible
debt and/or equity or debt securities. Although the partnership will endeavor to
engage in hedging transactions in order to mitigate downside risk, there can be
no assurance that the partnership's investments will be successful and, as a
result, WQN may lose all or some of its investment.

5.   Merger Agreement with Ntera Holdings

     On March 16, 2004, the Company entered into an Agreement and Plan of Merger
(the "Agreement") with Ntera Holdings, Inc., a Delaware corporation ("Ntera"),
providing for a transaction that would have resulted in a change of control of
WQN. On September 2, 2004 the Company terminated the Agreement with Ntera. In
connection with the Agreement, WQN extended to Ntera a bridge loan in the
principal amount of $2 million bearing interest of 7% per annum. Ntera granted
WQN a security interest in its assets to secure repayment of the loan. Under the
terms of the loan agreement, the full amount of the loan and accrued interest
are due and payable within nine months of the termination of the Agreement. At
September 30, 2005, Ntera had fulfilled all of its obligation to repay the
bridge loan.




                                       8
<PAGE>

                                    WQN, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                                   (UNAUDITED)

6.   Promissory Note

     The Company has borrowed $300,000 from a financial institution under a term
promissory note agreement (the "Note"). The Note bears interest at the financial
institution's prime rate as adjusted from time to time (6.75% at September 30,
2005) less 2.25% per annum. The Note is due in October 2005 and is
collateralized by a $300,000 certificate of deposit bearing interest of 3.25%
per annum.

7.   Value Communications Transaction

     In April 2004, the Company purchased from Value Communications Corporation
("ValuCom"), a wholly owned subsidiary of Rediff.com India Limited, certain
assets consisting primarily of ValuCom's customer list, brand, trademarks, web
sites, internally built software, and certain hardware for $500,000. The Company
paid $200,000 of the total consideration at closing with the remaining $300,000
to be paid in twelve monthly installments of $25,000 commencing May 2004. In
addition, the Company entered into an advertising agreement with Rediff.com,
Inc. ("Rediff") entitling WQN to marketing services including exclusive rights
to prominent online advertising space on the Rediff.com U.S. website, the
premier online destination for Indians in North America. Under the terms of the
advertising agreement, the Company will pay Rediff $50,000 for twelve
consecutive months commencing in May 2004 for the advertising services. At
September 30, 2005, the Company had fulfilled all of its obligation under both
the agreements. Substantially all of the ValuCom purchase consideration was
allocated to customer lists, which is included in other assets and is being
amortized over four years.

8.   Distribution and Marketing Agreement

     In September 2004, we entered into a distribution and marketing agreement
with a privately held company. As a result of the agreement, the Company's
products will be sold in more than 4,000 retail outlets in the Southern
California market. We sell telephony and other products to a network of
distributors who then re-sell the product to the retail outlets. The revenues
generated through this agreement are included in wholesale telephony revenues.
In connection with the agreement, we paid the private company $50,000 and issued
a warrant to purchase 40,000 shares of our common stock for a total
consideration of approximately $126,000 which is included as other long-term
assets and is being amortized over the three year term of the agreement.

9.   Stock-Based Compensation

     In December 2004, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 123 (revised), Share-Based Payment (SFAS 123R). This
standard amends SFAS No. 123, Accounting for Stock-Based Compensation, and
supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and
its related implementation guidance. SFAS 123R establishes the accounting for
grants of stock options and other transactions in which an entity exchanges its
equity instruments for goods or services. It also addresses transactions in
which an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity's equity instruments or that may be
settled by the issuance of those equity instruments. SFAS 123R requires that
companies use a fair value method to value stock options and recognize the
related compensation expense in net earnings. The provisions of SFAS 123R, as
amended by the Securities and Exchange Commission, are effective as of the
beginning of the first fiscal year after June 15, 2005.. We have provided
supplemental disclosures required by these standards, along with SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure an amendment of FASB
Statement No. 123." SFAS No. 123, "Accounting for Stock Based Compensation,"
("SFAS 123") requires the disclosure of pro forma net loss and loss per share
computed as if the Company had accounted for its employee stock options under
the fair value method set forth in SFAS 123. The following table illustrates the
effect on net loss and earnings per share as if the Company had applied the fair
value recognition provisions of SFAS 123.



                                       9
<PAGE>



                                    WQN, INC.

       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

                                   (UNAUDITED)

<TABLE>

<CAPTION>

<S>                             <C>              <C>              <C>              <C>
                                     Three months ended             Nine months ended September
                                        September 30,                           30,
                                ---------------------------       -------------------------------
                                    2005             2004              2005             2004
                                ------------   ------------       --------------   --------------
Net gain (loss) as
reported                        $(1,114,182)     $   201,647      $  (3,524,557)   $  (2,172,812)
Less stock-based
employee
compensation
expense                                  (0)         (21,298)           (87,183)        (152,158)
                                ------------     ------------     --------------   --------------
Pro forma net gain
(loss)                          $(1,114,182)     $   180,349      $  (3,611,740)   $  (2,324,970)
                                ============     ============     ==============   ==============
Earnings per share:
  As reported --
  basic and diluted             $     (0.16)     $       .03      $       (0.51)   $       (0.33)
                                ============     ============     ==============   ==============
  Pro forma -- basic
  and diluted                   $     (0.16)     $       .03      $       (0.52)   $       (0.35)
                                ============     ============     ==============   ==============

</TABLE>

10.  Legal Matters

     Pursuant to the term of a settlement agreement with Qwest Communications
arising out of a trademark dispute, on November 9, 2004 the Company changed its
name to WQN, Inc. from WorldQuest Networks, Inc.

     In September 2004, the Company settled a dispute with a vendor from which
it had purchased telecommunication services. Under the terms of the settlement,
the Company agreed to purchase from the vendor a total of $960,000 in
telecommunication services at rates less than the Company is paying for similar
services over a fourteen month period. The Company must purchase a minimum of
$80,000 per month in services beginning in the month that is four months after
the settlement date.

     The Company is a defendant from time to time in lawsuits and disputes
arising in the ordinary course of business. The Company believes that resolution
of all known contingencies is uncertain, and there can be no assurance that
future costs related to such litigation would not be material to the Company's
financial position or results of operations.


11.  Subsequent Events

     On October 5, 2005, the Company completed the sale of its
Voice-Over-Internet Protocol business (the "Sale") to VoIP Acquisition Company,
a Delaware corporation (the "Purchaser"), pursuant to the Asset Purchase
Agreement, dated as of August 3, 2005, by and among the Company, VoIP, Inc., a
Texas corporation ("VOIP") and the Purchaser (such Asset Purchase Agreement, the
"APA"). Pursuant to the APA, the Company received, in connection with the Sale,
total consideration of (i) a $3.7 million secured convertible promissory note
issued by VoIP, (ii) 1,250,000 shares of VoIP's restricted common stock and
(iii) a warrant to purchase 5,000,000 shares of VoIP's common stock at an
exercise price of $0.001 per share, plus the assumption of certain liabilities
by VoIP.

     On October 5, 2005, in connection with the Sale, B. Michael Adler stepped
down as Chief Executive Officer of the Company. Mr. Adler will remain on the
Board of Directors. Also on October 5, 2005, Scott W. Hartman was named the
Chief Executive Officer of the Company and David S. Montoya was named Chief
Financial Officer of the Company.




                                       10
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

     The following discussion of the financial condition and results of
operations of WQN, Inc. should be read in conjunction with the Management's
Discussion and Analysis or Plan of Operation (including Risk Factors That May
Affect Results of Operations and Financial Condition) and the Consolidated
Financial Statements and the Notes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2005.

Forward-Looking Statements

     Certain statements in this report, including statements of WQN's and
management's expectations, intentions, plans and beliefs, including those
contained in or implied by "Management's Discussion and Analysis or Plan of
Operation" and the Notes to Condensed Consolidated Financial Statements, are
"forward-looking statements", within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
subject to certain events, risks and uncertainties that may be outside
WorldQuest's control. These forward-looking statements include statements of
management's plans and objectives for WorldQuest's future operations and
statements of future economic performance, information regarding our expansion
and possible results from expansion, our expected growth, our capital budget and
future capital requirements, the availability of funds and our ability to meet
future capital needs, the realization of our deferred tax assets, and the
assumptions described in this report underlying such forward-looking statements.
Actual results and developments could differ materially from those expressed in
or implied by such statements due to a number of factors, including, without
limitation, those described in the context of such forward-looking statements,
our expansion and acquisition strategy, our ability to achieve operating
efficiencies, our dependence on network infrastructure, capacity,
telecommunications carriers and other suppliers, industry pricing and technology
trends, evolving industry standards, domestic and international regulatory
matters, general economic and business conditions, the strength and financial
resources of our competitors, our ability to find and retain skilled personnel,
the political and economic climate in which we conduct operations and the risk
factors described from time to time in our other documents and reports filed
with the Securities and Exchange Commission.

Overview

     On October 5, 2005, the Company completed the sale of its
Voice-Over-Internet Protocol business (the "Sale") to VoIP Acquisition Company,
a Delaware corporation (the "Purchaser"), pursuant to the Asset Purchase
Agreement, dated as of August 3, 2005, by and among the Company, VoIP, Inc., a
Texas corporation ("VOIP") and the Purchaser (such Asset Purchase Agreement, the
"APA"). Pursuant to the APA, the Company received, in connection with the Sale,
total consideration of (i) a $3.7 million secured convertible promissory note
issued by VoIP, (ii) 1,250,000 shares of VoIP's restricted common stock and
(iii) a warrant to purchase 5,000,000 shares of VoIP's common stock at an
exercise price of $0.001 per share, plus the assumption of certain liabilities
by VoIP.

     On October 5, 2005, in connection with the Sale, B. Michael Adler stepped
down as Chief Executive Officer of the Company. Mr. Adler will remain on the
Board of Directors. Also on October 5, 2005, Scott W. Hartman was named the
Chief Executive Officer of the Company and David S. Montoya was named Chief
Financial Officer of the Company.

     Prior to the Sale, we were an international Internet telephony company. Our
customers utilized our networks of Internet gateways and other traditional
networks to place long-distance calls online at discounted rates. We also sold
virtual calling cards processed through other companies' platforms including
prepaid wireless and prepaid Internet and from time to time we sold our excess
capacity to other long distance carriers. In September 2004, we began selling
virtual calling cards processed through our platform to other companies who then
re-sold our product to the end consumer under their private brand. Also, in
September 2004, we entered into a distribution and marketing agreement giving us
distribution of prepaid calling cards and other telephony products to more than
4,000 retail outlets in Southern California.

Continuing Operations

     Our primary source of revenue is the fees that we receive from our
telephony customers for completing calls over our network and from the sale of
telephony products to our network of distributors in the Southern California
market. Our Internet telephony revenue is dependent on the volume of voice
traffic carried over the network, which is measured in terms of minutes of voice
traffic and the fees per minute of traffic we charge our customers. We recognize
this revenue in the period in which the call is completed. We bill our retail
customers on a prepaid basis through credit cards. Our revenue from the sale of
telephony products to our distributors is included as wholesale telephony
revenue. We provide some of our credit worthy wholesale customers with terms
that generally allow them to pay for our products within two weeks. All other
wholesale customers pay for our products upfront.


                                       11

<PAGE>

     Cost of telephony revenue consists primarily of data communication and
telecommunication expenses to terminate long distance traffic over our networks,
which vary proportionately with the volume of traffic carried over our network.
These costs include Internet related expenses to send voice traffic over the
Internet, fees we pay to terminate calls, fees we pay to utilize the traditional
telephone network to terminate our calls, expenses incurred to connect our
customers to our network, and fees we pay to other service providers for the
purchase of telecom and other products which we distribute.

     Selling, general and administrative expenses consist of advertising and
promotional expenditures, payroll and related expenses for executive and
administrative personnel, facilities expenses, professional services expenses,
travel and other general corporate expenses.

     In July 2004, the Company sold all of the outstanding capital stock in its
wholly-owned subsidiary buyindiaonline.com, Inc. ("Cash2India") to a private
company for approximately $1,552,000. Under the terms of the transaction, the
Company received $852,000 in cash, a promissory note for $700,000, and a warrant
to purchase common stock in the acquiring company. The cash payment included
consideration for $352,000 in working capital associated with Cash2India at the
time of the sale. The promissory note bears interest at 5% per annum, is secured
by the capital stock of Cash2India, and is to be repaid in twenty-four
consecutive monthly payments of $29,167 plus accrued interest. The balance of
the promissory note and accrued interest was $291,667 as of September 30, 2005.
Cash2India is accounted for as a discontinued operation in the accompanying
consolidated financial statements.

Merger Agreement with Ntera Holdings

     On March 16, 2004, the Company entered into an Agreement and Plan of Merger
(the "Agreement") with Ntera Holdings, Inc., a Delaware corporation ("Ntera"),
providing for a transaction that would have resulted in a change of control of
WQN. On September 2, 2004 the Company terminated the Agreement with Ntera. In
connection with the Agreement, WQN extended to Ntera a bridge loan in the
principal amount of $2 million bearing interest of 7% per annum. Ntera granted
WQN a security interest in its assets to secure repayment of the loan. Under the
terms of the loan agreement, the full amount of the loan and accrued interest
are due and payable within nine months of the termination of the Agreement. The
balance of the Ntera note and accrued interest at September 30, 2005 was $7,358.
The Company expects to receive the remaining balance during the fourth quarter
of 2005.

Value Communications Transaction

     In April 2004, the Company purchased from Value Communications Corporation
("ValuCom"), a wholly owned subsidiary of Rediff.com India Limited, certain
assets consisting primarily of ValuCom's customer list, brand, trademarks, web
sites, internally built software, and certain hardware for $500,000. The Company
paid $200,000 of the total consideration at closing with the remaining $300,000
to be paid in twelve monthly installments of $25,000 commencing May 2004. In
addition, the Company entered into an advertising agreement with Rediff.com,
Inc. ("Rediff") entitling WorldQuest to marketing services including exclusive
rights to prominent online advertising space on the Rediff.com U.S website, the
premier online destination for Indians in North America. Under the terms of the
advertising agreement, the Company will pay Rediff $50,000 for twelve
consecutive months commencing in May 2004 for the advertising services. The
Company provided both ValuCom and Rediff irrevocable letters of credit for the
Company's remaining obligation under the agreements. The letters of credit are
secured by deposits in money market funds and the amount of the letters of
credit and the security deposits are reduced as the monthly installments are
paid. At September 30, 2005, the Company had fulfilled all of its obligation
under both the agreements. Substantially all of the ValuCom purchase
consideration was allocated to customer lists, which is included in other assets
and is being amortized over four years. . Critical Accounting Policies

     The Company's significant accounting policies are summarized in Note 2 of
its consolidated financial statements included in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2004. While all these significant
accounting policies impact its financial condition and results of operations,
the Company views certain of these policies as critical. Policies determined to
be critical are those policies that have the most significant impact on the
Company's financial statements and require management to use a greater degree of
judgment and/or estimates. Actual results may differ from those estimates. The
Company believes that given current facts and circumstances, it is unlikely that
applying any other reasonable judgments or estimate methodologies would cause a
material effect on the Company's consolidated results of operations, financial
position or liquidity for the periods presented in this report. The accounting
policies identified as critical are as follows:

                                       12


<PAGE>

Revenue Recognition

     The Company recognizes revenues in accordance with generally accepted
accounting principles as outlined in SAB No. 101 which requires that four basic
criteria be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists, (2) product delivery, including customer acceptance, has
occurred or services have been rendered, (3) the price is fixed or determinable
and (4) collectibility is reasonably assured. We bill our telephony calling card
customers on a prepaid basis through credit cards and recognize the revenue in
the period in which the call is completed. A substantial portion of the
Company's revenues is derived from the sale of prepaid phone cards that
terminate in India. We recognize sales of termination services we provide to
other long distance carriers in the period in which the service is provided
which is when the call is completed. We recognize the sale of telephony products
that we re-sell from other providers upon delivery of the product to the
wholesale customer.

Property and Equipment

     Property and equipment are depreciated over their useful lives. Useful
lives are based on management's estimates of the period that the assets will
generate revenue. Any change in conditions that would cause management to change
its estimate as to the useful lives of a group or class of assets may
significantly impact the Company's depreciation expense on a prospective basis.

Web Site Development Costs

     Our products and services are sold predominantly through our web sites. We
incur costs to maintain and add new functionality to our existing web sites and
to develop new web sites. Costs related to the planning and post implementation
phases of our web site development efforts are expensed. Direct costs incurred
in the development phase are capitalized and amortized over the product's
estimated useful life of one to three years, which is included in depreciation
expense. Costs associated with minor enhancements and maintenance for web sites
are expensed.

Income Taxes

     As of September 30, 2005, we had approximately $25,104,000 of net operating
loss carry forwards for federal income tax purposes, which expire beginning in
2011. We have not recognized an income tax benefit for our losses because of
uncertainty regarding future realizability and we have provided a full valuation
allowance on our deferred tax assets.

Results of Operations

Three Months Ended September 30, 2005 Compared to Three Months Ended September
30, 2004

Revenue

     Revenue increased approximately 140% to $8,650,000 for the three months
ended September 30, 2005 from $3,600,000 for the three months ended September
30, 2005. The $5,050,000 increase in revenue is mainly attributable to a
$4,600,000 increase in wholesale telephony revenue and a $400,000 increase in
retail telephony revenue. The increase in wholesale telephony revenue is
primarily attributable to a distribution and marketing agreement we entered into
in September 2004 giving the Company access to a distribution network consisting
of more than 5,000 retail locations in Southern California. During the third
quarter of 2005, the majority of the wholesale telephony revenue was from the
sale of telephony product we purchased from other providers. Retail telephony
increased approximately 18% over the prior year quarter. The increase in retail
telephony is primarily attributable to the addition of an Indian based call
center in the fourth quarter of 2004 from which we sell our telephony products.
Overall, our minutes of use have increased 59% to 21.4 million minutes for the
three months ended September 30, 2005, up from 13.4 million minutes for the
three months ended September 30, 2004.

     A substantial portion of our retail telephony customers are calling from
the United States to India. The Indian international telephony market continues
to experience downward pricing pressures and it is unlikely that this trend will
reverse in the near future.

Cost of Revenue

     Cost of revenue increased approximately 162% to $8,226,000 for the three
months ended September 30, 2005 from $3,134,000 for the three months ended
September 30, 2004. This $5,091,000 increase is due primarily to a shift in
revenue mix. Lower margin wholesale revenue comprised 68% of our total revenues



                                       13

<PAGE>

in the second quarter of 2005 compared to 36% in the comparable 2004 period. Our
gross profit percentage was approximately 5% during the second quarter of this
year, a decrease from approximately 62% in the year ago quarter. The decrease in
gross profit percentage during the quarter was primarily due to the addition of
lower margin wholesale telephony revenue. Excluding the wholesale operations,
our gross profit margin for the third quarter of 2005 was approximately 10%
compared to approximately 19% in the year ago quarter. The decrease in our
retail gross profit margin was primarily attributable to an increase in the
average termination price per minute without a corresponding increase in the
average selling price per minute. The increase in the average termination price
per minute is due primarily to the loss of certain carriers serving the Indian
international telephony market, which continues to experience pricing pressures.

Selling, General and Administrative

     Selling, general and administrative expenses increased approximately 75% to
$1,425,000 for the three months ended September 30, 2005 from $814,000 for the
three months ended September 30, 2004. This $611,000 increase is due primarily
to increased selling, general and administrative expenses in connection with the
introduction of RocketVoIP, the Company's proprietary next generation VoIP
technology service and to higher selling expenses associated with the addition
of the Indian based call center.

Merger Expenses

     During the second quarter of 2004 we incurred merger related expenses of
approximately $41,000 primarily for legal fees and professional services
associated with the previously announced Ntera Holdings, Inc. merger agreement
(see Part I, Item 2 - Merger Agreement with Ntera Holdings), which was
terminated in September 2004.

Depreciation and Amortization

     Depreciation and amortization decreased approximately 25% to $158,000 for
the three months ended September 30, 2005, from $212,000 for the three month
ended September 30, 2004. This $54,000 decrease is primarily attributable to
certain depreciable assets becoming fully depreciated in 2004.

Interest Income, Net

     Interest income, net consists of interest earned on cash and cash
equivalents and notes receivable less interest expense on borrowings. Interest
earned on cash and cash equivalents and notes receivable decreased to $44,000
for the three months ended September 30, 2005 from $88,000 for the three months
ended September 30, 2004. The decrease in interest income is primarily due to
the payment of the principal balance on the $2 million bridge loan to Ntera
Holdings, Inc., which was paid to the Company on April 1, 2005. For the three
months ended September 30, 2004 the company earned interest at a rate of 7% per
annum on the bridge loan made to Ntera Holdings, Inc. The decease was offset by
interest income earned on the Company's note receivable from the sale of
Cash2India, the financial services subsidiary. Interest expense for the 2005
third quarter totaled approximately $3,300 compared to $2,000 in the comparable
2004 quarter.

Loss From Investment In Partnership

     The Company accounts for its partnership interest under the equity method
of accounting and for the quarter ended September 30, 2005 recorded a gain from
its equity investment of $824.

Loss From Continuing Operations

     We incurred a loss from continuing operations of $1,114,000 for the three
months ended September 30, 2005 compared to a loss of $554,000 for the three
months ended September 30, 2004. This $560,000 increase in loss from continuing
operations is primarily attributable a $611,000 increase in selling, general and
administrative expenses.

Gain From Discontinued Operations

     The gain from discontinued operations is due to the sale of the Company's
financial services subsidiary, which comprised the financial services segment
(see Note 2, Discontinued Operations in notes to the financial statements). For
the periods presented, the loss from discontinued operations were attributable
to the loss from operations of the entity. The Company had a gain from
discontinued operations during the third quarter of 2004 of approximately
$756,000.


                                       14

<PAGE>

Nine months Ended September 30, 2005 Compared to Nine Months Ended September 30,
2004

Revenue

     Revenue increased approximately 188% to $24,233,000 for the nine months
ended September 30, 2005 from $8,400,000 for the nine months ended September 30,
2004. The $15,833,000 increase is a result of a $14,807,000 increase in
wholesale telephony revenue and a $1,026,000 increase in retail telephony
revenue. The increase in wholesale telephony revenue is primarily attributable
to a distribution and marketing agreement we entered into in September 2004
giving the Company access to a distribution network consisting of more than
5,000 retail locations in Southern California. During the second quarter of
2005, the majority of the wholesale telephony revenue was from the sale of
telephony product we purchased from other providers. Retail telephony increased
approximately 14% over the prior year period. The increase in retail telephony
is primarily attributable to the addition of an Indian based call center in the
fourth quarter of 2004 from which we sell our telephony products. Overall, our
minutes of use have increased to 63.3 million minutes for the nine months ended
September 30, 2005, up from 40.1 million minutes for the nine months ended
September 30, 2004.

     A substantial portion of our retail customers are calling from the United
States to India. The Indian international telephony market continues to
experience downward pricing pressures and it is unlikely that this trend will
reverse in the near future.

Cost of Revenue

     Cost of revenue increased approximately 333% to $23,157,000 for the nine
months ended September 30, 2005 from $6,927,000 for the nine months ended
September 30, 2004. This $16,200,000 increase is due primarily is due primarily
to a shift in revenue mix. Lower margin wholesale revenue comprised 66% of our
total revenues for the nine months ended September 30, 2005 compared to 2% in
the comparable 2004 period. Our gross profit percentage was approximately 4%
during the nine months ended September 30, 2005 of this year, a decrease from
approximately 18% in the year ago period. The decrease in gross profit
percentage during the nine months ended September 30, 2005 was primarily due to
the addition of lower margin wholesale telephony revenue. Excluding the
wholesale operations, our gross profit margin for the nine months ended
September 30, 2005 was approximately 8% compared to approximately 21% in the
year ago period. The decrease in our retail gross profit margin was primarily
attributable to an increase in the average termination price per minute without
a corresponding increase in the average selling price per minute. The increase
in the average termination price per minute is due primarily to the loss of
certain carriers serving the Indian international telephony market, which
continues to experience pricing pressures.

Selling, General and Administrative

     Selling, general and administrative expenses increased approximately 49% to
$3,855,000 for the nine months ended September 30, 2005 from $2,582,000 for the
nine months ended September 30, 2004. This $1,273,000 increase is due primarily
to increased selling, general and administrative expenses in connection with the
introduction of RocketVoIP, the Company's proprietary next generation VoIP
technology service and to higher selling expenses associated with the addition
of the Indian based call center.

Merger Expenses

     For the nine months ended September 30, 2004 we incurred merger expenses of
approximately $1,208,000 primarily for: legal fees ($415,000), investment
banking fees ($134,000), severance and other personnel cost ($574,000),
accounting fees ($27,000), and other administrative expenses ($58,000)
associated with the previously announced Ntera Holdings, Inc. merger agreement
(see Part I, Item 2 - Merger Agreement with Ntera Holdings). There were no such
merger related expenses for the comparable 2005 period.

Depreciation and Amortization

     Depreciation and amortization decreased approximately 13% to $498,000 for
the nine months ended September 30, 2005 from $575,000 for the nine months ended
September 30, 2004. This $77,000 decrease in depreciation and amortization is
primarily attributable to certain depreciable assets becoming fully depreciated
in 2004.


                                       15

<PAGE>


Interest Income, Net

     Interest income, net consists of interest earned on cash and cash
equivalents less interest expense on borrowings. Interest earned on cash and
cash equivalents was $148,000 for the nine months ended September 30, 2005 and
$203,000 for the nine months ended September 30, 2004. The $55,000 decrease in
interest income is primarily due to the principal balance on the $2 million
bridge loan to Ntera Holdings, Inc. was paid in full to the Company on April 1,
2005. The decease was offset by interest income earned on the Company's note
receivable from the sale of Cash2India, the financial services subsidiary.
Interest expense for the 2005 period totaled $4,200 compared to $3,000 in the
comparable 2004 period.

Loss From Continuing Operations

     We incurred a loss from continuing operations of $3,525,000 for the nine
months ended September 30, 2005 compared to a loss of $2,772,000 for the nine
months ended September 30, 2004. This $753,000 increase in loss from continuing
operations in the 2005 period is primarily attributable to a $396,000 increase
in loss from partnership interest and a $397,000 reduction in the Company's
gross profit.

Gain From Discontinued Operations

     The loss from discontinued operations is due to the sale of the Company's
financial services subsidiary, which comprised the financial services segment
(see Discontinued Operations in Note 2 to the financial statements). For the
periods presented, the loss from discontinued operations were attributable to
the loss from operations of the entity. The Company had a gain from discontinued
operations for the nine months ended September 30, 2004 of approximately
$598,000.

Liquidity and Capital Resources

     As of September 30, 2005, we had approximately $6,768,000 of cash and cash
equivalents and working capital of approximately $10,233,000. We generated
negative cash flow from operating activities of approximately $3,216,000 during
the nine months ended September 30, 2005, compared with negative cash flow from
operating activities of approximately $2,628,000 during the nine months ended
September 30, 2004. Net cash used in operating activities for the 2005 and 2004
periods primarily resulted from operating losses as well as changes in working
capital. The $588,000 increase in cash used in operating activities in the 2005
period from the 2004 period is due primarily to a absence of expenses incurred
in connection with the Ntera Holdings, Inc. merger agreement in the 2004 period
offset by increased expenses for SG&A and losses related to partnership interest
during 2005.

     Net cash proceeds from investing activities was $19,600 for the nine months
ended September 30, 2005 compared to cash used in investing activities of
$2,035,000 for the nine months ended September 30, 2004. Net cash proceeds for
the 2005 period are comprised of debt repayments of $2,331,000 partially offset
by capital expenditures of $311,000, a long-term investment of $1,000,000 and a
short-term investment of $1,000,000. Cash used in investing activities for the
nine months ended September 30, 2004 is attributable to capital expenditures of
$245,000 and a $2,000,000 loan made to Ntera Holdings, Inc. in connection with
the merger agreement, which was terminated in September 2004. The balance of the
Ntera note and accrued interest at September 30, 2005 was $7,358 and the Company
expects to receive the remaining balance during the fourth quarter of 2005. The
loan is secured by the assets of Ntera.

     The Company has borrowed $300,000 from a financial institution under a term
promissory note agreement (the "Note"). The Note bears interest at the financial
institution's prime rate as adjusted from time to time (6.75% at September 30,
2005) less 2.25% per annum. The Note is due in October 2005 and is
collateralized by a $300,000 certificate of deposit bearing interest of 3.25%
per annum.

     The Company received a $700,000 note in connection with the sale of the
outstanding capital stock of its wholly-owned subsidiary Cash2India. The note
bears interest at 5% per annum, is secured by the capital stock of Cash2India,
and is to be repaid in twenty-four consecutive monthly payments of $29,167 plus
accrued interest. The balance of the promissory note and accrued interest was
$291,667 as of September 30, 2005.

     In November 2004, the Company invested $3 million in a partnership managed
by an affiliate of a director of the Company. The majority of the partnership
assets are to be invested in private investments in public entities. The
partnership investments will take the form of common equity, preferred equity,


                                       16

<PAGE>

convertible debt and/or equity or debt securities. Although the partnership will
endeavor to engage in hedging transactions in order to mitigate downside risk,
there can be no assurance that the partnership's investments will be successful
and, as a result, the Company may lose all or some of its investment. The
partnership agreement contains certain restrictions, including limits on the
Company's ability to withdraw capital from the partnership and limits on the
transferability of the Company's interests in the partnership. The Company can
receive a distribution on its partner capital account by giving the partnership
60 days written notice. The Company records its proportionate share of earnings
and losses from the partnership based on its share of the partnership and for
the nine months ended September 30, 2005 recorded a loss from its partnership
investment of $397,000.

     The Company generated cash from financing activities of $22,000 for the
nine months ended September 30, 2005 and $1,078,000 for the nine months ended
September 30, 2004 related to the exercise of stock options.

     We currently anticipate that our existing cash resources will be sufficient
to meet our anticipated needs for working capital and capital expenditure
requirements through at least the next 24 months. We may need to raise
additional funds prior to the expiration of such period if, for example, we
pursue business acquisitions or experience operating losses that exceed our
current expectations. If we raise additional funds through the issuance of
equity, equity-related or debt securities, such securities may have rights,
preferences or privileges senior to those of the rights of our common stock and
our stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms when required,
or at all.

Income Taxes

     As of September 30, 2005, we had approximately $25,104,000 of net operating
loss carry forwards for federal income tax purposes, which expire beginning in
2011. We have not recognized an income tax benefit for our losses as we have
provided a full valuation allowance on our deferred tax assets, which consists
primarily of net operating loss carry forwards, because of uncertainty regarding
future realizability. Limitations on the utilization of these carry forwards may
result if we experience a change of control, as defined in the Internal Revenue
Code of 1986, as amended, as a result of changes in the ownership of our common
stock.

ITEM 3. CONTROLS AND PROCEDURES

     In accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of our disclosure controls and procedures as of the end of the
period covered by this Report on Form 10-QSB. Based on that evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of September 30, 2005 to
provide reasonable assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.

     There has been no change in our internal controls over financial reporting
that occurred during the three months ended September 30, 2005 that has
materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.



                                       17
<PAGE>

                            PART II-OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     The Company is a defendant from time to time in lawsuits and disputes
arising in the ordinary course of business. The Company believes that resolution
of all known contingencies is uncertain, and there can be no assurance that
future costs related to such litigation would not be material to the Company's
financial position or results of operations.

     In September 2004, the Company settled a dispute with a vendor from which
it had purchased telecommunication services. Under the terms of the settlement,
the Company agreed to purchase from the vendor a total of $960,000 in
telecommunication services at rates less than the Company is paying for similar
services over a fourteen month period. The Company must purchase a minimum of
$80,000 per month in services beginning in the month that is four months after
the settlement date.

     The Company is a defendant from time to time in lawsuits and disputes
arising in the ordinary course of business. The Company believes that resolution
of all known contingencies is uncertain, and there can be no assurance that
future costs related to such litigation would not be material to the Company's
financial position or results of operations.

ITEM 2. CHANGES IN SECURITIES

     Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     On October 4, 2005, the Company held its annual meeting (the "Annual
Meeting"), whereby the WQN stockholders approved the Sale. Also at the Annual
Meeting, the WQN stockholders elected B. Michael Adler, Robert A. Farmer, E.
Denton Jones, Elizabeth H. Buchler, Hal H. Bibee, Scott W. Hartman and David S.
Montoya to WQN's Board of Directors, among other items voted upon.

The following sets forth a brief description of each matter voted on at the
Annual Meeting and state the voting for each such matter.

1. The stockholders of the Company approved (a) the Asset Purchase Agreement,
dated as of August 3, 2005 (the "Asset Purchase Agreement"), by and among the
Company, VoIP, Inc., a Texas corporation and VoIP Acquisition Company, a
Delaware corporation; and (b) the sale of the Voice-Over-Internet-Protocol
business of the Company as contemplated by the Asset Purchase Agreement, which
may be deemed to be a sale of substantially all the assets of the Company
pursuant to Delaware General Corporation Law.

              FOR                    AGAINST                   ABSTAIN
              ---                    -------                   -------
   Number            %         Number          %          Number         %
   ------            --        ------          -          ------         -
   3,637,402         97        94,440          2          3,500          1

2. The stockholders of the Company elected B. Michael Adler, E. Denton Jones,
Robert A. Farmer, Elizabeth H. Buchler, Hal H. Bibee, Scott W. Hartman and David
S. Montoya to the Board of Directors of the Company to serve until the next
Annual Meeting of Stockholders and until their successors are elected and
qualified.


Nominees for                       FOR                        WITHHELD
Director                     Number              %         Number            %
------------                 -----             ---         ------           ---

B. Michael Adler             3,578,324          96          157,018          4
E. Denton Jones              3,573,624          96          161,718          4
Robert A. Farmer             3,573,484          96          161,858          4
Elizabeth H. Buchler         3,573,484          96          161,858          4
Hal H. Bibee                 3,578,324          96          157,018          4



                                       18
<PAGE>

Scott W. Hartman             3,578,324          96          157,018          4
David S. Montoya             3,572,124          96          163,218          4


3. The stockholders of the Company approved an amendment to the Company's 2002
Stock Option Plan to increase the number of shares of Common Stock reserved for
issuance under the Plan from 750,000 to 1,250,000.


              FOR                    AGAINST                   ABSTAIN
              ---                    -------                   -------
   Number            %         Number          %          Number         %
   ------            --        ------          -          ------         -
   3,491,071         93        242,471         7          1,800         N/A

4. The stockholders of the Company ratified the appointment of Grant Thornton
LLP as the Company's independent accountants for the fiscal year ending December
31, 2005.

              FOR                    AGAINST                   ABSTAIN
              ---                    -------                   -------
   Number            %         Number          %          Number         %
   ------            --        ------          -          ------         -
   3,656,842         98        76,500          2          2,000         N/A


ITEM 5. OTHER INFORMATION

    Not applicable.

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

(a) The following exhibits are filed as a part of this Report on Form 10-QSB
pursuant to Item 601 of regulation S-B:


------------  ------------------------------------------------------------------
Exhibit
Number        Description of Exhibits
------------  ------------------------------------------------------------------

*31.1          Certification of the Company's Chief Executive Officer, pursuant
               to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

*31.2          Certification of the Company's Chief Financial Officer, pursuant
               to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

*32.1          Certification of the Company's Chief Executive Officer pursuant
               to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
               the Sarbanes-Oxley Act of 2002.

*32.2          Certification of the Company's Chief Financial Officer pursuant
               to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
               the Sarbanes-Oxley Act of 2002.

----------
*     Filed herewith.


(b) Reports on Form 8-K

               Form 8-K, filed July 1, 2005, regarding entry into a definitive
               material contract, departure of a principal officer and
               appointment of a principal officer.

               Form 8-K, filed August 9, 2005, regarding entry into a definitive
               material contract, departure of a principal officer and
               appointment of a principal officer.

               Form 8-K, filed August 16, 2005, regarding the election of
               directors.



                                       19
<PAGE>

               Form 8-K/A, filed August 17, 2005, regarding departure of a
               principal officer and appointment of a principal officer.

               Form 8-K, filed August 25, 2005, regarding entry into definitive
               material contracts.

               Form 8-K/A, filed August 26, 2005, regarding entry into
               definitive material contracts.





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<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, there-unto
duly authorized.


                                                      WQN, INC.


November 14, 2005                                By:  /s/ Scott W. Hartman
                                                      ---------------------
                                                      Scott W. Hartman
                                                      Chief Executive Officer



November 14, 2005                                By:  /s/ David S. Montoya
                                                      ---------------------
                                                      David S. Montoya
                                                      Chief Financial Officer



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