UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


           |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                  For the quarterly period ended March 31, 2006

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

       For the transition period from ________________ to ________________

                        Commission file number: 000-32319

                       ALLIANCE DISTRIBUTORS HOLDING INC.
             (Exact name of registrant as specified in its charter)

                Delaware                                     33-0851302
     (State or other jurisdiction of                      (I.R.S. Employer
      incorporation or organization)                      Identification No.)

15-15 132nd Street, College Point, New York                    11356
 (Address of principal executive offices)                   (Zip Code)

                                 (718) 747-1500
              (Registrant's telephone number, including area code)

                                     [None]
         (Former name, former address and former fiscal year, if changed
                               since last report)

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                                Yes [X] No [_]

      Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]

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

                                                Yes [_] No [X]

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

                 Class                            Outstanding at May 1, 2006
---------------------------------------       ----------------------------------
Common Stock, $.001 par value per share                48,721,065 shares


<PAGE>


                                      INDEX

                                                                         Pages
PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

    Balance Sheets at March 31, 2006 (Unaudited)
    and December 31, 2005 (Audited)                                         3

    Statements of Operations for the three
    months ended March 31, 2006 and 2005 (Unaudited)                        4

    Statement of Stockholders' Equity for the three
    months ended March 31, 2006 (Unaudited)                                 5

    Statements of Cash Flows for the three months
    ended March 31, 2006 and 2005 (Unaudited)                               6

    Notes to Financial Statements (Unaudited)                             7-9

Item 2 - Management's Discussion and Analysis of Financial Condition
    and Results of Operations                                           10-13

Item 3 - Quantitative and Qualitative Disclosures about Market Risk        13

Item 4 - Controls and Procedures                                           13

PART II - OTHER INFORMATION

   Item 1A - Risk Factors                                               13-16

   Item 4 - Submission of Matters to a Vote of Security Holders            16

   Item 6 - Exhibits                                                       17

   Signatures                                                              18



                                       2
<PAGE>


                         Part I - Financial Information

Item 1 - Financial Statements

                       ALLIANCE DISTRIBUTORS HOLDING INC.
                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                                    March 31,      December 31,
                                                                                      2006            2005
                                                                                   (Unaudited)      (Audited)
                                                                                   ------------    ------------
                                            ASSETS
<S>                                                                                <C>             <C>
Current assets:
  Cash                                                                             $    775,774    $    251,844
  Accounts receivable, net of allowance for
    doubtful accounts of approximately $181,000                                       4,301,221       5,526,444
  Inventory                                                                           6,686,609       5,368,967
  Due from vendors                                                                      633,800         739,453
  Prepaid acquisition and proposed offering costs                                          --           161,823
  Prepaid expenses and other current assets                                             290,622         224,665
  Deferred tax asset                                                                    225,000         155,000
                                                                                   ------------    ------------
          Total current assets                                                       12,913,026      12,428,196

Property and equipment, net                                                             339,798         370,875

Other assets                                                                             66,300          71,300
                                                                                   ------------    ------------
                                                                                   $ 13,319,124    $ 12,870,371
                                                                                   ============    ============

                              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Note payable-bank                                                                $  6,157,537    $  5,135,167
  Accounts payable                                                                    3,681,242       4,033,497
  Current portion of long term obligations                                               14,177          18,468
  Accrued expenses and other current liabilities                                        216,476         393,830
                                                                                   ------------    ------------
         Total current liabilities                                                   10,069,432       9,580,962

Long term obligations                                                                     9,758          12,126

Deferred lease obligation                                                                26,500          25,785

Commitments and contingencies

Stockholders' equity:
  Series A Convertible Non-Redeemable Preferred Stock,
    $.001 par value; 8,530,348 and 8,615,348 shares authorized;
    261,663 and 346,663 shares issued and outstanding
    at March 31, 2006 and December 31, 2005, respectively                                   262             347
  Common Stock, $.001 par value; 100,000,000 shares
    authorized; 48,721,065 and 47,368,756 shares
    issued and outstanding at March 31, 2006 and
    December 31, 2005, respectively                                                      48,721          47,369
  Additional paid-in capital                                                          3,278,777       3,224,521
  Accumulated deficit                                                                  (114,326)        (20,739)
                                                                                   ------------    ------------
        Total stockholders' equity                                                    3,213,434       3,251,498
                                                                                   ------------    ------------
                                                                                   $ 13,319,124    $ 12,870,371
                                                                                   ============    ============
</TABLE>

See notes to financial statements.


                                       3
<PAGE>


                       ALLIANCE DISTRIBUTORS HOLDING INC.
                      Statements of Operations (Unaudited)
               For the three months ended March 31, 2006 and 2005



                                                  Three months ended March 31,
                                                  ----------------------------
                                                         2006           2005
                                                  ------------    ------------
Net sales                                         $ 13,318,598    $ 10,888,835

Cost of goods sold                                  11,759,688       9,646,498
                                                  ------------    ------------
Gross profit                                         1,558,910       1,242,337

Operating expenses:
  Selling, general and administrative expenses       1,275,193       1,277,402
  Terminated transaction costs                         257,457            --
                                                  ------------    ------------
Total operating expenses                             1,532,650       1,277,402
                                                  ------------    ------------
Income (loss) from operations                           26,260         (35,065)

Interest expense                                       188,057          93,613
                                                  ------------    ------------
Loss before provision for (benefit from) income
  taxes                                               (161,797)       (128,678)

Provision for (benefit from) income taxes              (68,210)          1,000
                                                  ------------    ------------
Net loss                                          $    (93,587)   $   (129,678)
                                                  ============    ============
Net loss per share - basic and diluted            $        .00    $        .00
                                                  ============    ============
Weighted-average common shares outstanding
  basic and diluted                                 48,165,127      46,417,098
                                                  ============    ============


See notes to financial statements.


                                       4
<PAGE>

                       ALLIANCE DISTRIBUTORS HOLDING INC.
                  Statement of Stockholders' Equity (Unaudited)
                    For the three months ended March 31, 2006



<TABLE>
<CAPTION>
                                  Preferred Stock A              Common Stock          Additional                       Total
                             --------------------------    -------------------------     Paid In      Accumulated   Stockholders'
                                Shares         Amount         Shares        Amount       Capital        Deficit         Equity
                             -----------    -----------    -----------   -----------   -----------    -----------    -----------
<S>                          <C>            <C>            <C>           <C>           <C>            <C>            <C>
Balance, January 1, 2006         346,663    $       347     47,368,756   $    47,369   $ 3,224,521    $   (20,739)   $ 3,251,498

Conversion of Preferred
 Stock A into Common Stock       (85,000)           (85)     1,352,309         1,352        (1,267)            --             --

Stock option compensation
  expense                             --             --             --            --        55,523             --         55,523

Net loss                              --             --             --            --            --        (93,587)       (93,587)
                             -----------    -----------    -----------   -----------   -----------    -----------    -----------
Balance, March 31, 2006          261,663    $       262     48,721,065   $    48,721   $ 3,278,777    $  (114,326)  $  3,213,434
                             ===========    ===========    ===========   ===========   ===========    ===========    ===========
</TABLE>



See notes to financial statements.


                                       5
<PAGE>

                       ALLIANCE DISTRIBUTORS HOLDING INC.
                      Statements of Cash Flows (Unaudited)
               For the three months ended March 31, 2006 and 2005


<TABLE>
<CAPTION>
                                                            Three months ended March 31,
                                                            ----------------------------
                                                                2006            2005
                                                            ------------    ------------
<S>                                                       <C>               <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
    Net loss                                              $     (93,587)    $   (129,678)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
    USED IN OPERATING ACTIVITIES:
        Deferred rent                                               715            3,341
        Depreciation and amortization                            31,077           25,401
        Bad debt expense                                             --          100,000
        Stock option compensation expense                        55,523           26,833
        Interest amortization of deferred financing costs        30,000           17,000
        Deferred taxes                                          (70,000)              --
        CHANGES IN ASSETS AND LIABILITIES:
         (Increase) decrease in assets
           Accounts receivable                                1,225,223         (718,824)
           Inventory                                         (1,317,642)        (437,107)
           Due from vendors                                     105,653         (390,835)
           Prepaid acquisition and proposed offering costs      161,823               --
           Prepaid expenses and other current assets            (90,957)          11,325
         Increase (decrease) in liabilities
           Accounts payable                                    (352,255)           4,987
           Accrued expenses and other current
              liabilities                                      (177,354)          10,594
                                                            ------------    ------------
        Net cash used in operating activities                  (491,781)      (1,476,963)
                                                            ------------    ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
    Purchase of property and equipment                               --           (5,883)
                                                            ------------    ------------
        Net cash used in investing activities                        --           (5,883)
                                                            ------------    ------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
    Proceeds from note payable - bank                         15,296,713      11,343,034
    Repayments of note payable - bank                        (14,274,343)     (9,858,420)
    Payments for registration costs                                   --         (16,250)
    Repayment of long-term obligations                            (6,659)         (8,475)
                                                            ------------    ------------
Net cash provided by financing activities                      1,015,711       1,459,889
                                                            ------------    ------------
NET INCREASE (DECREASE) IN CASH                                  523,930         (22,957)

CASH, beginning of period                                        251,844         220,605
                                                            ------------    ------------
CASH, end of period                                         $    775,774    $    197,648
                                                            ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest paid                                           $    173,709    $     82,913
                                                            ============    ============
    Income tax paid                                         $     82,216    $      2,013
                                                            ============    ============
</TABLE>

See notes to financial statements.


                                       6
<PAGE>


                       ALLIANCE DISTRIBUTORS HOLDING INC.
                    Notes to Financial Statements (Unaudited)

Note 1 - THE COMPANY AND INTERIM FINANCIAL STATEMENTS

Alliance Distributors Holding Inc. (the "Company" or "Alliance") is a
distributor of video game consoles, peripherals, accessories and software to
customers throughout the United States for most key manufacturers and third
party publishers in the video game industry. The Company operates as a single
segment.

On July 21, 2005, the Company and Abrams/Gentile Entertainment Inc. ("Age")
entered into an operating agreement ("Agreement") in which the Company and Age
became members in Alliance Age LLC, a limited liability company formed in
Delaware, to set forth the terms on which the parties will develop and
commercialize products they mutually agree upon from time to time. The Company
owns 65% of Alliance Age LLC. As of March 31, 2006, Alliance Age LLC was
inactive.

The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
have been omitted. This Form 10-Q should be read in conjunction with the
Company's financial statements and notes included in the 2005 Annual Report on
Form 10-KSB. In the opinion of management, all material adjustments, consisting
of normal recurring adjustments, considered necessary for a fair presentation,
have been included in the accompanying unaudited financial statements.

The results of operations for the interim periods are not necessarily indicative
of the results that maybe expected for the full year ending December 31, 2006.

Note- 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Allowance for Doubtful Accounts

The Company establishes credit terms for new clients based upon management's
review of their credit information and projects terms, performs ongoing credit
evaluations of its customers, adjusting credit terms when management believes
appropriate based upon payment history and an assessment of their current credit
worthiness. The Company records an allowance for doubtful accounts for estimated
losses resulting from the inability of its clients to make required payments.
The Company determines this allowance by considering a number of factors,
including the length of time trade accounts receivable are past due, previous
loss history, estimate of the client's current ability to pay its obligation to
the Company, and the condition of the general economy and the industry as a
whole. While credit losses have generally been within expectations and the
provisions established, the Company cannot guarantee that credit loss rates in
the future will be consistent with those experienced in the past. In addition,
the Company has credit exposure if the financial condition of one of its major
clients were to deteriorate. In the event that the financial condition of its
clients were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be necessary. It is reasonably possible that
the Company's estimate of the allowance for doubtful accounts will change. As of
March 31, 2006 and December 31, 2005, the Company's allowance for doubtful
accounts has a balance of approximately $181,000.

Inventory

Inventory consists entirely of finished goods held for sale and is reported at
the lower of cost or market, on the average cost basis. The Company receives
price protection from its suppliers for merchandise that may be slow moving or
aged. The Company evaluates the adequacy of its slow moving or aged inventory
quarterly and writes down its inventory to fair value based upon the price
protection received or current market value. While write-downs have been within
expectations and the provisions established, the Company cannot guarantee that
it will continue to experience the same level of write-downs as in the past. At
times, the Company makes advance payments to vendors to procure and ensure
delivery of certain high demand products. Such deposits are reflected as due
from vendors in the balance sheet. The Company does not offer warranties to its
customers but will accept returns of product claimed to be defective and
reimburse the customers for the full purchase price. The majority of the
Company's suppliers in turn accept these returns from us. There are no reserves
for warranties as of March 31, 2006 and December 31, 2005.

Income Taxes

The Company accounts for income taxes using the liability method which requires
the recognition of deferred tax assets or liabilities for the temporary
differences between the financial reporting and tax bases of the Company's
assets and liabilities and for tax carryforwards at enacted statutory rates in
effect for the years in which the differences are expected to reverse. The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. In addition, valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding for the period. Diluted
net income per share is computed by dividing the net income by the weighted
average number of common shares and common equivalent shares outstanding during
the period.


                                       7
<PAGE>


Common equivalents for the three months ended March 31, 2006 and 2005 exclude
792,802 and 261,905 shares, respectively, for warrants issued since their effect
would be anti-dilutive.

Stock Based Compensation

Previously, pursuant to Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," the Company accounted for stock based employee
compensation arrangements using the intrinsic value method. Accordingly, no
compensation expense was recorded in the financial statements with respect to
option grants, since the options were granted at/or above market value.

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004),
"Share Based Payment" ("SFAS No. 123R") which eliminates the use of APB 25 and
the intrinsic value method of accounting, and requires companies to recognize
the cost of employee services received in exchange for awards of equity
instruments, based on the grant date fair value of those awards, in the
financial statements. The Company has adopted the modified prospective method
whereby compensation cost is recognized in the financial statements beginning
with the effective date based on the requirements of SFAS No. 123R for all
share-based payments granted after that date and for all unvested awards granted
prior to that date.

Had compensation costs for the Company's stock option grants to employees been
determined based on the fair value at the grant dates for awards under these
plans in accordance with SFAS No. 123R, the Company's net income (loss) and
basic and diluted net income (loss) per share would have been as follows:

<TABLE>
<CAPTION>
                                                         For the three months ended
                                                                 March 31,
                                                              2006        2005
                                                           ----------------------
                                                                (Unaudited)
<S>                                                        <C>          <C>
Net loss, as reported                                      $ (93,587)   $(129,678)

Add: stock-based employee compensation expense, included
  in reported net loss, net of taxes                          29,427         --

Deduct: stock-based employee compensation expense
  determined under fair value based method, net of taxes     (29,427)     (53,208)
                                                           ---------    ---------
Proforma net loss                                          $ (93,587)   $(182,886)
                                                           =========    =========
Net loss per share:

    Basic and diluted net loss per share, as reported      $    0.00    $    0.00
                                                           =========    =========
    Pro forma basic and diluted net loss per share         $    0.00    $    0.00
                                                           =========    =========
</TABLE>

The fair value of the options-pricing model was calculated with the following
weighted-average assumptions used for grants during the three months ended March
31, 2005: risk-free interest rate 4.25-4.5%; expected life 6.5 years; expected
volatility 55-115%. The fair value generated by the Black-Scholes model may not
be indicative of the future benefit, if any, that may be received by the option
holder. There were no grants of options during the three months ended March 31,
2006.

Note 3 - FINANCING AGREEMENTS

The Company has entered into a financing agreement with Rosenthal & Rosenthal,
Inc. ("Rosenthal") dated November 11, 2004 and amended on November 1, 2005 (the
"Agreement"). Under the Agreement, Rosenthal may in its discretion lend to the
Company up to $10,000,000, which is the maximum credit under the facility, based
on eligible inventory and receivables. All borrowings are due on demand, are
secured by substantially all of the assets of the Company and are subject to the
Company's compliance with certain financial covenants. The Company's CEO and the
Company's President have signed limited guaranties in respect of borrowings
under the Agreement.

The amendment dated November 1, 2005 among other things increased the maximum
credit under the facility from $5,000,000 to $10,000,000 and reduced the
interest rate on borrowings by 0.5%.

The Agreement terminates November 30, 2007 unless terminated by Rosenthal on 30
days' notice. Interest accrues on outstanding borrowings at the prime rate (but
not less than 4.75%) plus 1.5%. At March 31, 2006, the interest rate on
borrowings outstanding was 9.25%. In addition, the Company will pay the lender
on each anniversary date an annual fee of 1% of the maximum credit which is
amortized over one year, and a monthly administrative fee of $1,000. The
financing expense for the annual fee recorded for the three months ended March
31, 2006 and 2005 amounted to approximately $25,000 and $12,500, respectively.
At March 31, 2006 and December 31, 2005, the principal amount outstanding under
the facility was $6,157,537 and $5,135,167, respectively.


                                       8
<PAGE>


In connection with establishing the Agreement, the Company issued to Rosenthal a
warrant (the "Warrant") to purchase 500,000 shares of common stock at $0.10 per
share. The Warrant expires on November 30, 2010. On notice by the Company the
Warrants will expire earlier if the closing price of the common stock during a
period designated in the Warrants is not less than $0.40 per share. The Warrants
may be exercised for cash or on a cashless basis (i.e., by deducting from the
number of shares otherwise issuable on exercise a number of shares that have a
then market value equal to the exercise price). The Company recorded a deferred
financing cost of approximately $60,000 in the fourth quarter 2004, representing
the fair value of the warrants, which will be amortized over the life of the
financing agreement of three years. The financing expense recorded for the three
months ended March 31, 2006 and 2005 amounted to approximately $5,000 and
$4,500, respectively.

Under the terms of the Agreement, the Company is required to maintain a
specified level of net worth, working capital and debt ratios as defined. On
March 21, 2006, the Company and Rosenthal agreed to amend the covenants,
effective December 31, 2005. The Company was in compliance with all its
covenants at March 31, 2006.

The Company believes that it will have sufficient liquidity for the next twelve
months and the foreseeable future. However, the Company would be materially and
adversely affected if Rosenthal demands payment of these borrowings under the
Agreement and the Company is unable to refinance these borrowings.

Note 4 - LITIGATION

On August 19, 2004 a complaint was filed by Radio Wave LLC ("Plaintiff"), in the
Supreme Court of the State of New York, County of New York, against Essential
Reality, LLC, Essential and David Devor, a former officer and a current employee
of the Company, for rent and costs relating to premises formerly occupied by the
Company. Plaintiff seeks to recover $150,416 for the period up to August 31,
2004, plus additional amounts to be determined by the Court for the period
subsequent to August 31, 2004. Plaintiff also seeks to recover $50,000 in
expenses and attorney fees plus additional amounts to be determined by the
Court. The Company is currently in settlement discussions with the Plaintiff and
has provided a reserve for its estimate of the loss.

Note 5 - SUBSEQUENT EVENT

On April 26, 2006, the Company announced that it will not buy Foto Electric
Supply Co., Inc. (Fesco). An agreement by the Company to buy Fesco expired by
its terms on February 28, 2006, and subsequent discussions to extend and amend
the agreement have ended. The Company recorded a charge of approximately
$257,000 in the first quarter of 2006 for its costs in the terminated
transaction.


                                       9
<PAGE>


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

FORWARD - LOOKING STATEMENTS

The following discussion of our financial condition and results of operations
should be read together with the financial statements and related notes included
elsewhere in this report. Some of the statements in this section that are not
historical facts are forward-looking statements. You are cautioned that the
forward-looking statements contained in this section are estimates and
predictions, and that our actual results could differ materially from those
anticipated in the forward-looking statements due to risks, uncertainties or
actual events differing from the assumptions underlying these statements. The
risks, uncertainties, and assumptions include, but are not limited to, those
disclosed in our annual report on Form 10-KSB for our fiscal year ended December
31, 2005.

OVERVIEW

Our distribution revenues are derived from the sale of interactive video games
and gaming products for all key manufacturers and third-party software titles,
accessories and hardware. Operating margins in our distribution business are
dependent on the mix of software and hardware sales, with software generating
higher margins than hardware.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Certain of the Company's accounting policies require the application of
significant judgment by management in selecting the appropriate assumptions for
calculating financial estimates. By their nature, these judgments are subject to
an inherent degree of uncertainty. These judgments are based on historical
experience, observation of trends in the industry, information provided by
customers and information available from other outside sources, as appropriate.
Critical accounting policies include:

Revenue Recognition - The Company recognizes sales upon shipment of products to
customers as title and risk of loss pass upon shipment and collectibility is
reasonably assured. Provisions for estimated uncollectible discounts and rebates
to customers, estimated returns and allowances and other adjustments are
provided for in the same period the related sales are recorded. While such
amounts have been within expectations and the provisions established, the
Company cannot guarantee that it will continue to experience the same rates as
in the past.

Accounts Receivable - Accounts Receivable as shown on the Balance Sheet are net
of allowances and anticipated discounts. The Company establishes credit terms
for new clients based upon management's review of their credit information and
projects terms, performs ongoing credit evaluations of its customers, adjusting
credit terms when management believes appropriate based upon payment history and
an assessment of their current credit worthiness. The allowance for doubtful
accounts is determined through analysis of the aging of accounts receivable at
the date of the financial statements for estimated losses resulting from the
inability of its clients to make required payments. The Company determines this
allowance by considering a number of factors, including the length of time trade
accounts receivable are past due, previous loss history, estimate of the
client's current ability to pay its obligation to the Company, and the condition
of the general economy and the industry as a whole. While credit losses have
generally been within expectations and the provisions established, the Company
cannot guarantee that credit loss rates in the future will be consistent with
those experienced in the past. In addition, the Company has credit exposure if
the financial condition of one of its major clients were to deteriorate. In the
event that the financial condition of its clients were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances may be
necessary. It is reasonably possible that the Company's estimate of the
allowance for doubtful accounts will change. As of March 31, 2006 and December
31, 2005, the Company's allowance for doubtful accounts has a balance of
approximately $181,000.

Inventories - Inventory is stated at the lower of cost or market, cost being
determined on the average cost basis. The Company receives price protection from
its suppliers for merchandise that may be slow moving or aged. The Company
evaluates the adequacy of its slow moving or aged inventory quarterly and writes
down its inventory to fair value based upon the price protection received or
current market value. While write-downs have been within expectations and the
provisions established, the Company cannot guarantee that it will continue to
experience the same level of write-downs as in the past. The Company does not
offer warranties to its customers but will accept returns of product claimed to
be defective and reimburse the customers for the full purchase price. The
majority of the Company's suppliers in turn accept these returns from us. There
are no reserves for warranties as of March 31, 2006 and December 31, 2005.

Income Taxes - At December 31, 2005, the Company had federal and state net
operating loss carryforwards (NOL's) of approximately $5,481,000. In accordance
with SFAS No. 109, "Accounting for Income Taxes", the Company establishes
valuation allowances if it is "more likely than not" that the Company will not
be able to utilize it to offset future taxes. The Company has established a
valuation allowance of $2,356,600 at December 31, 2005 due to the uncertainty
surrounding the realization of the NOL's which resulted from a transaction under
a Share Exchange Agreement in June 2004 by and among the Company (formerly
Essential Reality, Inc.) and Jay Gelman, Andre Muller and Francis Vegliante
("Exchange Agreement"). Pursuant to IRC Section 382 of the Tax Reform Act of
1986 the utilization of NOL's is limited in the case of certain transactions
including significant changes in ownership interests. The Company has determined
that based upon the terms of the Exchange Agreement, an ownership change
pursuant to this Act has occurred and as a result, the NOL's are significantly
limited.


                                       10
<PAGE>


FLUCTUATIONS IN OPERATING RESULTS AND SEASONALITY

We have experienced fluctuations in quarterly operating results as a result of
the timing of the introduction of new titles; variations in sales of titles
developed for particular platforms; market acceptance of our titles; sequels or
enhancements of existing titles; projected and actual changes in platforms; the
timing and success of title introductions by our competitors; product returns;
changes in pricing policies by us and our competitors; order cancellations; and
delays in product shipment. Sales of our titles are also seasonal, with peak
shipments typically occurring in the fourth calendar quarter as a result of
increased demand for titles during the holiday season. Annual comparisons of
operating results are not necessarily indicative of future operating results.

RESULTS OF OPERATIONS

The following table shows each specified item as a dollar amount and as a
percentage of net sales for the three months ended March 31, 2006 and 2005, and
should be read in conjunction with the financial statements included elsewhere
in this Quarterly Report on Form 10-Q:


<TABLE>
<CAPTION>
                                              Three months                 Three months
                                                  ended                        ended
                                                 March 31,                    March 31,
                                                   2006                         2005
                                               (Thousands)                   (Thousands)
                                         ------------------------     -----------------------
<S>                                      <C>                <C>       <C>               <C>
Net sales                                $   13,319         100.0%    $   10,889        100.0%
Cost of goods sold                           11,760          88.3%         9,647         88.6%
                                         ----------    ----------     ----------   ----------
   Gross profit                               1,559          11.7%         1,242         11.4%

Operating expenses:
  Selling, general and
    administrative expenses                   1,275           9.6%         1,277         11.7%
  Terminated transaction costs                  258           1.9%            --           .0%
                                         ----------    ----------     ----------   ----------
Total operating expenses                      1,533          11.5%         1,277         11.7%
                                         ----------    ----------     ----------   ----------
Income (loss) from operations                    26            .2%           (35)         (.3%)

Interest expense                                188           1.4%            94           .9%
                                         ----------    ----------     ----------   ----------
Loss before income taxes                       (162)         (1.2%)         (129)        (1.2%)

Income tax expense (benefit)                    (68)          (.5%)             1           .0%
                                         ----------    ----------     ----------   ----------

Net loss                                 $      (94)          (.7%)   $     (130)        (1.2%)
                                         ==========    ==========     ==========   ==========
</TABLE>

Three Months Ended March 31, 2006 compared to Three Months Ended March 31, 2005

Net sales increased by $2,429,763, or 22.3%, from $10,888,835 for the three
months ended March 31, 2005 to $13,318,598 for the three months ended March 31,
2006. The growth in net sales was primarily due to the increase in sales with
our existing customers, as well as an increase in our customer base.

Cost of goods sold increased by $2,113,190, or 21.9%, from $9,646,498 for the
three months ended March 31, 2005 to $11,759,688 for the three months ended
March 31, 2006. The increase was consistent with revenue growth. Gross profit as
a percentage of net sales increased to 11.7% for the three months ended March
31, 2006 from 11.4% for the three months ended March 31, 2005. Cost of goods
sold excludes the distribution costs of purchasing, receiving, inspection,
warehousing and handling costs; we include these costs in our selling, general
and administrative expenses. Our gross margins may not be comparable to those of
other entities since some entities include these distribution costs in the cost
of goods sold. These distribution costs were $311,028 and $252,079 for the three
months ended March 31, 2006 and 2005, respectively.

Selling, general and administrative expenses decreased by $2,209, or .2%, from
$1,277,402 for the three months ended March 31, 2005 to $1,275,193 for the three
months ended March 31, 2006. The decrease was primarily due to the Company's
decrease in bad debt expense of $100,000 offset by increases in freight out
expenses of $60,483 due primarily to fuel increases and advertising and
marketing expenses of $20,759 as a result of the Company's attendance at trade
shows in the first quarter of 2006. Selling, general and administrative expenses
as a percentage of net sales decreased to 9.6% for the three months ended March
31, 2006 from 11.7% for the three months ended March 31, 2005. For the three
months ended March 31, 2006, selling, general and administrative expenses were
comprised of the following: $190,751 in selling expenses, $311,028 in
distribution costs and $773,414 in general and administrative expenses. For the
three months ended March 31, 2005, selling, general and administrative expenses
were comprised of the following: $164,758 in selling expenses, $252,079 in
distribution costs and $860,565 in general and administrative expenses.

Terminated transaction costs of $257,457, or 1.9% of sales, have been expensed
to operations in the three months ended March 31, 2006 because of the Company's
determination that it will not buy Foto Electric Supply Co., Inc. (Fesco). An
agreement by the Company to buy Fesco expired by its terms on February 28, 2006,
and subsequent discussions to extend and amend the agreement have ended.


                                       11
<PAGE>


Interest expense increased by $94,444, or 100.9%, from $93,613 for the three
months ended March 31, 2005 to $188,057 for the three months ended March 31,
2006. The increase was primarily due to increased borrowings, higher interest
rates on bank borrowings and increased interest amortization of deferred
financing costs during the three months ended March 31, 2006. The increased
borrowing levels were the result of increased sales volume that required higher
inventory levels.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, 2006 net cash used in operating activities
was $491,781. Net cash used in operations for the three months ended March 31,
2006 consisted of a net loss of $93,587 and included the following changes in
operating assets and liabilities: a decrease in accounts receivable of
$1,225,223, an increase in inventory of $1,317,642, a decrease in prepaid
acquisition and proposed offering costs of $161,823, a decrease in accounts
payable of $352,255 and a decrease in accrued expenses and other current
liabilities of $177,354. The decrease in accounts receivable of $1,225,223 was
primarily the result of lower sales volume in the first quarter of 2006 than
fourth quarter of 2005. The increase in inventory of $1,317,642 in the first
quarter of 2006 was the result of new releases and strategic inventory purchases
based upon anticipated market demand for hardware.

There was no net cash used in investing activities for the three months ended
March 31, 2006.

Net cash provided by financing activities for the three months ended March 31,
2006 was $1,015,711 which primarily consisted of net proceeds on our note
payable to bank of $1,022,370.

For the three months ended March 31, 2005 net cash used in operating activities
was $1,476,963. Net cash used in operations for the three months ended March 31,
2005 consisted of a net loss of $129,678 and included the following changes in
operating assets and liabilities: an increase in accounts receivable of
$718,824, an increase in inventory of $437,107, and an increase in due from
vendors of $390,835. These increases were the result of increased sales volume.

Net cash used in investing activities for the three months ended March 31, 2005
was $5,883, which was used for the purchase of equipment.

Net cash provided by financing activities for the three months ended March 31,
2005 was $1,459,889 which primarily consisted of net proceeds on our note
payable to bank of $1,484,614.

The Company has entered into a financing agreement with Rosenthal & Rosenthal,
Inc. ("Rosenthal") dated November 11, 2004 and amended on November 1, 2005 (the
"Agreement"). Under the Agreement, Rosenthal may in its discretion lend to the
Company up to $10,000,000, which is the maximum credit under the facility, based
on eligible inventory and receivables. All borrowings are due on demand, are
secured by substantially all of the assets of the Company and are subject to the
Company's compliance with certain financial covenants. The Company's CEO and the
Company's President have signed limited guaranties in respect of borrowings
under the Agreement.

The amendment dated November 1, 2005 among other things increased the maximum
credit under the facility from $5,000,000 to $10,000,000 and reduced the
interest rate on borrowings by 0.5%.

The Agreement terminates November 30, 2007 unless terminated by Rosenthal on 30
days' notice. Interest accrues on outstanding borrowings at the prime rate (but
not less than 4.75%) plus 1.5%. At March 31, 2006, the interest rate on
borrowings outstanding was 9.25%. In addition, the Company will pay the lender
on each anniversary date an annual fee of 1% of the maximum credit which is
amortized over one year, and a monthly administrative fee of $1,000. The
financing expense for the annual fee recorded for the three months ended March
31, 2006 and 2005 amounted to approximately $25,000 and $12,500, respectively.
At March 31, 2006 and December 31, 2005, the principal amount outstanding under
the facility was $6,157,537 and $5,135,167, respectively.

In connection with establishing the Agreement, the Company issued to Rosenthal a
warrant (the "Warrant") to purchase 500,000 shares of common stock at $0.10 per
share. The Warrant expires on November 30, 2010. On notice by the Company the
Warrants will expire earlier if the closing price of the common stock during a
period designated in the Warrants is not less than $0.40 per share. The Warrants
may be exercised for cash or on a cashless basis (i.e., by deducting from the
number of shares otherwise issuable on exercise a number of shares that have a
then market value equal to the exercise price). The Company recorded a deferred
financing cost of approximately $60,000 in the fourth quarter 2004, representing
the fair value of the warrants, which will be amortized over the life of the
financing agreement of three years. The financing expense recorded for the three
months ended March 31, 2006 and 2005 amounted to approximately $5,000 and
$4,500, respectively.

Under the terms of the Agreement, the Company is required to maintain a
specified level of net worth, working capital and debt ratios as defined. On
March 21, 2006, the Company and Rosenthal agreed to amend the covenants,
effective December 31, 2005. The Company was in compliance with all its
covenants at March 31, 2006.


                                       12
<PAGE>


The Company believes that it will have sufficient liquidity for the next twelve
months and the foreseeable future. However, the Company would be materially and
adversely affected if Rosenthal demands payment of these borrowings under the
Agreement and the Company is unable to refinance these borrowings.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates, foreign
exchange rates and equity prices. The Company has no financial instruments that
give it exposure to foreign exchange rates or equity prices.

The Company's pre-tax earnings and cash flows are exposed to changes in interest
rates as all borrowings under its credit facility bear interest at the prime
rate (but not less than 4.75%) plus 1.5%. As of March 31, 2006, the Company's
note payable-bank bore interest at 9.25%. As of March 31, 2006, a hypothetical
immediate 10% adverse change in prime interest rates relating to the Company's
note payable-bank would have an approximate $57,000 unfavorable impact on its
earnings and cash flows over a one-year period, assuming the borrowing level
remains consistent with the outstanding borrowings as of March 31, 2006. The
fair value of the borrowings under the credit facility is not affected by
changes in market interest rates.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation has been carried out under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer/Principal Financial and Accounting Officer, of the
effectiveness of the design and the operation of our "disclosure controls and
procedures" (as such term is defined in Rules 13a-15(e) under the Securities
Exchange Act of 1934) as of March 31, 2006 ("Evaluation Date"). Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer/Principal
Financial and Accounting Officer have concluded that, as of the Evaluation Date,
the disclosure controls and procedures are reasonably designed and effective to
ensure that (i) information required to be disclosed by us in the reports we
file or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms, and (ii) such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial
Officer/Principal Financial and Accounting Officer, as appropriate to allow
timely decisions regarding required disclosure.

                            PART 2. OTHER INFORMATION

Item numbers 1, 2, 3 and 5 are not applicable and have been omitted.

ITEM 1A. RISK FACTORS

We have a limited operating history and have engaged in our current business
only since August 2003.

In November 2003, under prior management of the Company, we discontinued our
business of manufacturing and selling a video controller. Our current videogame
distribution business commenced operations on August 11, 2003 and was acquired
by us in June 2004. We have not yet demonstrated our ability to operate
profitably during a major downturn in our industry.

We may be unable to sell our existing inventory after announcements by major
manufacturers of new platform launches.

We may be adversely affected if a current industry slowdown in consumer
purchases of hardware models continues for a lengthy period of time. Because of
the planned introduction of new system platforms from Sony Corporation,
Nintendo, and shortages in Xbox 360 consoles from Microsoft, consumers often
elect to wait for these new models instead of purchasing current systems, and
this can cause a significant slowdown in industry revenues. If this were to
continue and intensify, there would be a significant negative impact on our
customers' ability to sell their existing inventory. As a result, orders for
current systems would be reduced significantly, which would greatly limit our
ability to sell these products. Although major manufacturers have traditionally
reduced the prices of their current hardware models ahead of the launch of new
systems, we cannot assure you that these manufacturers will continue this price
reduction strategy. Even if manufacturers do reduce prices, we cannot assure you
that any past success will result in increased purchases of existing systems
ahead of new platform launches.

We are dependent on the contributions of our key executives and must maintain
their services; Not entitled to key man proceeds.

Our success depends in large degree upon the skills of our senior management
team and key employees and, in particular, Jay Gelman, our Chairman and CEO, and
Andre Muller, our COO. We have entered into an employment agreement with Mr.
Gelman. This employment agreement expires May 31, 2006. None of such persons has
expressed any intention to terminate or not commence services on our behalf, as
the case may be. We have obtained only $1,000,000 in key man insurance on the
life of Mr. Gelman, and this policy has been assigned to the Company's senior
lender. The loss of the services of any of these persons would have a material
adverse effect on our business.

Gross margins relating to our business have been historically narrow which
increases the impact of variations in costs on our operating results.

As a result of intense price competition, our gross margins in our business have
historically been narrow and may continue to be narrow in the future.
Accordingly, slight variations in operating costs and expenses could result in
losses in our distribution business from period to period.


                                       13
<PAGE>


We depend on a limited number of suppliers and have no long-term agreement with
any suppliers.

Our ability to obtain particular products in required quantities and to fulfill
customer orders on a timely basis is critical to our success. In most cases, we
have no guaranteed price or delivery agreements with suppliers. In certain
product categories, limited price concessions or return rights offered by
publishers may have a bearing on the amount of product we may be willing to
purchase. Our industry may experience significant hardware supply shortages from
time to time due to the inability of certain manufacturers to supply certain
products on a timely basis. As a result, we have experienced, and may in the
future continue to experience, short-term hardware inventory shortages. In
addition, we do not develop or manufacture any of the products we sell, but act
solely as a distributor for the products of third parties. As such, we are
entirely dependent on manufacturers or publishers who currently distribute their
products through us, and who may, at any time, decide to distribute, or to
substantially increase their existing distribution, through other distributors,
or directly to retailers. During the three months ended March 31, 2006, our
three largest suppliers accounted for approximately 53.5% of our purchases (with
one accounting for approximately 29.8% of such total purchases alone) and our
ten largest suppliers in the aggregate accounted for approximately 80.9% of our
purchases. Our distribution agreements with our major suppliers are generally
terminable at any time by the suppliers on 30 days' prior written notice. In the
event that we are unable to maintain our distribution arrangements with one or
more of these significant suppliers, our business would be harmed and may not
survive.

We would be adversely affected by a change in the marketing and distribution of
videogame hardware systems and videogames by manufacturers.

Major manufacturers such as Sony, Nintendo and Microsoft, could change their
marketing strategies and rely less on their current distributors to sell
hardware systems and videogames. Since we depend on the products from these
manufacturers for a significant portion of our revenues, this would adversely
impact our financial situation, as there would be fewer products available for
sale by us and our customers would be forced to look for other sources to
procure the types of products we currently sell to them. Although we believe
that there is only a limited risk that these manufacturers would significantly
reduce their distribution of products through us, because of our high level of
product penetration and strong customer base, we cannot assure you that one or
more of these manufacturers will not take such action.

We have not entered into any distribution arrangement with Microsoft for
distribution of its Xbox(R) product.

To date we have no direct business relationship with Microsoft Corporation
("Microsoft") for the distribution of its Xbox(R) game console. The Xbox and
Xbox 360 consoles, currently represent an important segment of the videogame
console market. To date, as a result of our inability to obtain a direct
distribution arrangement with Microsoft for its Xbox products, we have had to
purchase Xbox(R) products from one of Microsoft's distributors, thereby reducing
our margins on these products. In the event that we are unable to acquire a
direct distribution arrangement with Microsoft, in the near future, for the sale
of Xbox products, including the newly-launched Xbox 360, our business could be
adversely affected.

Our quarterly operating results may vary significantly, which could cause the
price of our Common Stock to decline.

We have experienced and may continue to experience wide fluctuations in
quarterly operating results. The interactive entertainment industry is highly
seasonal, with sales typically higher during the fourth calendar quarter, due
primarily to the increased demand for games during the holiday buying season.
Our failure or inability to acquire products on a timely basis to meet seasonal
fluctuations in demand may harm our business and operating results. These
fluctuations could also cause the price of our Common Stock to decline. Other
factors that cause fluctuations include:

      o     delays in the introduction of new titles;
      o     the size and timing of product and business acquisitions;
      o     variations in sales of titles designed to operate on particular
            platforms;
      o     availability of hardware platforms;
      o     product returns and price concessions; and
      o     the timing of orders from major customers.

Our expense levels are based, in part, on our expectations regarding future
sales and therefore our operating results would be harmed by a decrease in sales
or a failure to meet our sales expectations. The uncertainties associated with
interactive entertainment software development, manufacturing lead times,
production delays and the approval process for products by hardware
manufacturers and other licensors make it difficult to predict the quarter in
which products will ship and therefore may cause us to fail to meet financial
expectations. In future quarters our operating results may fall below the
expectations of securities analysts and investors. In this event, the market
price of our Common Stock could significantly decline.


                                       14
<PAGE>


We are subject to the risk that our inventory values may decline and protective
terms under supplier arrangements may not adequately cover the decline in
values.

The interactive entertainment software and hardware industry is characterized by
the introduction of new and enhanced generations of products and evolving
industry standards. These changes may cause inventory to decline substantially
in value or to become obsolete. We are also exposed to inventory risk in our
distribution business to the extent that supplier price concessions are not
available on all products or quantities and are subject to time restrictions. In
addition, suppliers may become insolvent and unable to fulfill price concession
obligations.

We have no long term agreements with any customer and we are dependent on a
limited number of customers.

We do not have long-term purchase and sale agreements with any of our customers,
and all of our sales to customers are made on a purchase order by purchase order
basis. Although we believe that our customer base currently consists of
approximately 2,600 retail stores located throughout the United States and
Canada, with a majority being in the New York metropolitan area and surrounding
tri-state region, during the three months ended March 31, 2006, our largest
customer accounted for 12.6% of our sales, our top five customers accounted for
40.3% of our sales, our top ten customers accounted for 55.1% of our sales and
our top 25 customers accounted for 68.7% of our sales. Since we have no
long-term commitments with any of the customers to continue to purchase products
from us, the loss of any of these customers could have a materially adverse
effect on our business.

We hold no patents or material proprietary technology.

We have no intellectual property other than a trademark for "Video Game
Alliance."

Unanticipated warranty costs could affect our ability to operate profitably.

We do not have any facilities for the repair or service of any products, and
generally reimburse our customers in full for returns. Although the majority of
our suppliers accept these returns from us, certain suppliers credit us with a
fixed allowance for returns and require that we assume the risk of excess
returns. We will be adversely affected if our returns for these suppliers exceed
their return allowances.

Risks Related To Our Industry

Our business operates in a highly competitive environment.

The intense competition that characterizes our industry is based primarily on
breadth, availability and quality of product lines; price; terms and conditions
of sale; credit terms and availability; speed and accuracy of delivery; and
effectiveness of sales and marketing programs. Our competitors include regional,
national and international distributors, as well as hardware manufacturers and
software publishers. There are several distributors in the United States that
have revenues and financial resources and company history substantially greater
than us. We are at a disadvantage to these companies and need to compete on the
basis of the services we provide to our customers. We may lose market share or
be forced in the future to reduce our prices in response to the actions of our
competitors, and thereby experience a reduction in our gross margins.

We may be adversely affected if the financial health of the U.S. retail industry
should deteriorate.

We are subject to broad economic factors that drive consumer spending and
maintain the health of the U.S. retail industry. These factors include, but are
not limited to, unemployment rates, consumer credit levels, consumer confidence,
and household discretionary income. If any of these or other economic factors
should erode, consumer spending would fall and the U.S. retail industry would
suffer a downturn. Consequently, our earnings would be adversely impacted by
lower sales.

We may be adversely affected by the trend towards retail trade consolidation.

As we pursue our retail distribution strategy, our sales will be contingent upon
the favorable wholesale prices that we can obtain from retailers. If retailers
merge or the retail industry consolidates, the larger, combined retailers will
have significant pricing power because of the sheer size of their retail
networks. As a result, we may not be able to obtain reasonable prices for the
products we distribute. Consequently, our margins will decline and our results
of operations would be reduced. There can be no assurance that we will be able
to obtain reasonable wholesale prices for the products we distribute under a
scenario where retailers merge and consolidate into larger entities.

The market for the titles we carry is characterized by short product life
cycles.

The market for the titles we carry is characterized by short product life cycles
and frequent introductions of new products. New products introduced may not
achieve significant market acceptance or achieve sufficient sales to permit us
to recover the amounts advanced by us to purchase such products, as well as our
marketing costs. The life cycle of a game generally involves a relatively high
level of sales during the first few months after introduction followed by a
decline in sales. Because revenues associated with the initial shipments of a
new product generally constitute a high percentage of the total revenues
associated with the life of a product, any delay in the introduction of one or
more new products or our ability to obtain such products on a timely basis,
could adversely affect our operating results for particular periods.

Our business is cyclical, and we may fail to anticipate changing consumer
preferences.

Our business is subject to all of the risks generally associated with the
interactive entertainment industry, which has been cyclical in nature and has
been characterized by periods of significant growth followed by rapid declines.
Our future operating results will depend on numerous factors beyond our control,
including:



                                       15
<PAGE>


      o     the popularity, price and timing of new software and hardware
            platforms being released and distributed by us and our competitors;

      o     international, national and regional economic conditions,
            particularly economic conditions adversely affecting discretionary
            consumer spending;

      o     war, acts of terrorism and military action, which could adversely
            affect consumer preferences in entertainment;

      o     changes in consumer demographics;

      o     the availability and popularity of other forms of entertainment; and

      o     critical reviews and public tastes and preferences, all of which
            change rapidly and cannot be predicted.

In order to plan for acquisition and promotional activities, we must anticipate
and respond to rapid changes in consumer tastes and preferences. A decline in
the popularity of interactive entertainment or particular platforms could cause
sales of the products we distribute to decline dramatically. The period of time
necessary to develop new game titles, obtain approvals of manufacturers and
produce finished products is unpredictable. During this period, consumer appeal
for a particular title may decrease, causing product sales to fall short of
expectations.

Rating systems for interactive entertainment software, potential legislation and
consumer opposition could inhibit sales of the products we carry.

Trade organizations within the videogame industry require interactive
entertainment software publishers to provide consumers with information relating
to graphic violence, profanity or sexually explicit material contained in
software titles, and impose penalties for noncompliance. We understand that
certain countries have also established similar rating systems as prerequisites
for sales of interactive entertainment software in such countries. Our
suppliers' software titles receive a rating of "E" (age 6 and older), "T" (age
13 and over) or "M" (age 17 and over). Many of the new titles we carry have
received an M rating. We do not know whether our supplies properly comply with
such rating systems or properly display the ratings and content descriptions
received for our titles.

Several proposals have been made for federal legislation to regulate the
interactive entertainment software, motion picture and recording industries,
including a proposal to adopt a common rating system for interactive
entertainment software, television and music containing violence or sexually
explicit material, and the Federal Trade Commission has issued reports with
respect to the marketing of such material to under-17 audiences. Consumer
advocacy groups have also opposed sales of interactive entertainment software
containing graphic violence or sexually explicit material by pressing for
legislation in these areas (including legislation prohibiting the sale of
certain "M" rated videogames to under-17 audiences) and by engaging in public
demonstrations and media campaigns. Retailers may decline to sell interactive
entertainment software containing graphic violence or sexually explicit
material, which may limit the potential market for the "M" rated products we
sell, and adversely affect our operating results. If any groups (including
international, national and local political and regulatory bodies) were to
target our suppliers' "M" rated titles, we might be required to discontinue a
particular title, which in the case of the best selling titles could seriously
hurt our business.

Our business is subject to sudden changes in the popularity of the products we
distribute and to technological changes.

We will be adversely affected by any material decrease in the attractiveness of
videogames, or by the availability of equivalent entertainment through the
Internet or other channels. The sudden decline in popularity of even one
particular video console or game can force us to make a substantial write-down
of our inventory of these products.

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

On December 19, 2005, shareholders holding 62% of the total outstanding shares
entitled to vote, voted to amend the Company's Certificate of Incorporation to
effect a reverse stock split of the Company's authorized common stock, par value
$0.001 per share and the Company's issued and outstanding common stock on the
basis of one-for-five at such time, if any, as the Board of Directors shall deem
appropriate ("Reverse Stock Split"). The Board of Directors has to this date not
effected the Reverse Stock Split.

On January 13, 2006, shareholders holding 62% of the total outstanding shares
entitled to vote, voted to amend the Company's Certificate of Incorporation to
increase the number of the Company's authorized shares of common stock from
20,000,000 shares to 100,000,000 shares on a post 2006 Reverse Stock Split basis
at such time, if any, as the Board of Directors shall deem appropriate. The
Board of Directors has to this date not effected the increase in authorized
shares.


                                       16
<PAGE>


ITEM 6. EXHIBITS.

                                    Exhibits.

EXHIBIT INDEX



NUMBER       DESCRIPTION
------       -----------
31.1         Certification of Chief Executive Officer pursuant to Section 302 of
             the Sarbanes-Oxley Act of 2002.
31.2         Certification of Chief Financial Officer pursuant to Section 302 of
             the Sarbanes-Oxley Act of 2002.
32.1         Certification of Chief Executive Officer pursuant to Section 906 of
             the Sarbanes-Oxley Act of 2002.
32.2         Certification of Chief Financial Officer pursuant to Section 906 of
             the Sarbanes-Oxley Act of 2002.





                                       17
<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

May 5, 2006
Alliance Distributors Holding Inc.





By: /s/ Jay Gelman
    -------------------------------------------
    Jay Gelman
    CEO and Chairman of the Board

By: /s/ Barbara A. Ras
    -------------------------------------------
    Barbara A. Ras
    Chief Financial Officer/Principal Financial and
    Accounting Officer





                                       18