**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-QSB**




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




For
                the fiscal quarter ended**September
                30, 2006**
            
            Commission
                File Number:**000-52023**






**PURE
                VANILLA EXCHANGE, INC.**(Exact
                name of small business issuer specified in its
                charter)




**Nevada**
            
            **98-0442839**(State
                or other jurisdiction of incorporation)
            
            (I.R.S.
                Employer Identification No.)




**805
                Third Avenue, 15****th****Floor, New York, NY 10022**(Address of principal executive offices)**(212)
                972-1600**(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 of 1934 during the preceding 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 checkmark whether the issuer is a shell company (as defined in Rule 12b-2
      of
      the Exchange Act). Yes o No x





As
      of
      November 13, 2006, the Company had 53,900,031 shares of common stock, par value
      $.001 per share, issued and outstanding.





Transitional
      Small Business Disclosure Format. Yes o No x

















Index





**Page****Part
                I. Financial Information**Item
                1. Financial Statements (unaudited)Balance
                Sheet as of September 30, 2006 (unaudited)
            1Statements
                of Operations for the three and nine months ended September 30, 2006
                and
                from August 30, 2005 (Inception) to September
                30, 2006 (unaudited)
            2Statements
                of Changes in Stockholders’ Deficit from August 30, 2005 (Inception) to
                September
                30, 2006 (unaudited)
            3Statements
                of Cash Flows for the nine months ended September 30, 2006 and
                from August 30, 2005 (Inception) to September 30, 2006
                (unaudited)
            4Notes
                to the Financial Statements (unaudited)
            5Item
                2. Management's Discussion and Analysis or Plan of
                Operation
            17Item
                3. Controls and Procedures
            21**Part
                II. Other Information**Item
                1. Legal Proceedings
            22Item
                2. Changes in Securities
            22Item
                3. Defaults upon Senior Securities
            22Item
                4. Submission of Matters to a Vote of Security Holders
            22Item
                5. Other Information
            22Item
                6. Exhibits
            23Signatures
            24













**Pure
      Vanilla eXchange, Inc.**


**(a
      development stage company)**







**BALANCE
      SHEET**





**September
                30, 2006****(Unaudited)****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            2,542Customer
                deposits
            
            
            5,645Prepaid
                expenses and other current assets
            
            
            144,142Deferred
                costs, net of accumulated amortization of $230,283
            
            
            343,378Total
                Current Assets
            
            
            495,707Property
                and equipment, net of accumulated depreciation of $1,552
            
            
            18,573Deferred
                costs and other assets
            
            
            424,895**TOTAL
                ASSETS**
            
            $
            939,175**LIABILITIES
                AND STOCKHOLDERS' DEFICIT**Current
                Liabilities:Accounts
                payable
            
            $
            331,538Customer
                deposits
            
            
            5,645Short-term
                loans and accrued interest payable, net of discount of
                $384,075
            
            
            1,885,798Other
                current liabilities
            
            
            192,892Total
                Current Liabilities
            
            
            2,415,873CommitmentStockholders'
                Deficit:Common
                Stock, $0.001 par value;Authorized
                shares - 500,000,000; Issued andoutstanding shares
                53,900,031
            
            
            53,900Additional
                paid-in-capital
            
            
            3,164,480Accumulated
                deficit during development stage
            
            
            (4,695,078
            )Total
                Stockholders' Deficit
            
            
            (1,476,698
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIT**
            
            $
            939,175





***See
      notes to financial statements***






1




**Pure
        Vanilla eXchange, Inc.**
 **(a
        development stage company)**
  
 **STATEMENTS
        OF OPERATIONS**
 
 **August
                  30, 2005****Nine
                  Months**
              
              **Three
                  Months**
              
              **(Date
                  of Inception)****Ended
                  September**
              
              **Ended
                  September**
              
              **to
                  September 30,****30,
                  2006**
              
              **30,
                  2006**
              
              **2006****(Unaudited)**
              
              **(Unaudited)**
              
              **(Unaudited)**Sales
              
              $
              621
              
              $
              621
              
              $
              621Operating
                  expenses:Software
                  licensing fees
              
              
              500,000
              
              
              —
              
              
              500,000Other
                  operating expenses
              
              
              2,433,321
              
              
              1,129,929
              
              
              2,555,277Loss
                  from operations before other expenses
              
              
              (2,932,700
              )
              
              (1,129,308
              )
              
              (3,054,656
              )Other
                  expenses:Organizational
                  costs
              
              
              (1,017,647
              )
              
              —
              
              
              (1,017,647
              )Interest
                  expense
              
              
              (622,775
              )
              
              (431,970
              )
              
              (622,775
              )Total
                  other expenses
              
              
              (1,640,422
              )
              
              (431,970
              )
              
              (1,640,422
              )Net
                  Loss
              
              $
              (4,573,122
              )
              $
              (1,561,278
              )
              $
              (4,695,078
              )Basic
                  and diluted net loss per share
              
              $
              (0.09
              )
              $
              (0.03
              )Weighted
                  average number of shares outstanding
              
              
              50,650,714
              
              
              53,900,031
 
 ***See
        notes to financial statements*** ****







2





**Pure
        Vanilla eXchange, Inc.**
 **(a
        development stage company)**
  **STATEMENT
        OF CHANGES IN STOCKHOLDERS' DEFICIT**
 **(Unaudited)**
 
 **Accumulated****Additional**
              
              **Deficit
                  during****Common
                  Stock**
              
              **Paid-in**
              
              **Development****Shares**
              
              **Amount**
              
              **Capital**
              
              **Stage**
              
              **Total**August
                  30, 2005 (Date ofInception) (Restated)
              
              
              10,568,634
              
              $
              8,563
              
              $
              (8,563
              )
              $
              —
              
              $
              —Shares
                  issued for cash(Restated)
              
              
              26,483,492
              
              
              27,740
              
              
              99,760
              
              
              —
              
              
              127,500Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              (121,956
              )
              
              (121,956
              )Balance
                  at December 31, 2005(Restated)
              
              
              37,052,126
              
              
              36,303
              
              
              91,197
              
              
              (121,956
              )
              
              5,544Shares
                  issued for cash (Restated)
              
              
              754,228
              
              
              790
              
              
              328,956
              
              
              —
              
              
              329,746Shares
                  issued for services (Restated)
              
              
              15,036,814
              
              
              15,750
              
              
              —
              
              
              —
              
              
              15,750Shares
                    issued for services inconnection with the reversemerger
              
              
              1,056,863
              
              
              1,057
              
              
              791,590
              
              
              —
              
              
              792,647Stock
                  Options granted under 2006Incentive Compensation
                  Plan
              
              
              —
              
              
              —
              
              
              439,693
              
              
              —
              
              
              439,693Warrants
                  issued in connectionwith guarantee of lease
              
              
              —
              
              
              —
              
              
              421,696
              
              
              —
              
              
              421,696Warrants
                  issued with loans
              
              
              —
              
              
              —
              
              
              1,091,348
              
              
              —
              
              
              1,091,348Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              (4,573,122
              )
              
              (4,573,122
              )Balance
                  at September 30, 2006
              
              
              53,900,031
              
              $
              53,900
              
              $
              3,164,480
              
              $
              (4,695,078
              )
              $
              (1,476,698
              )
 
 ***See
        notes to financial statements***




3


**Pure
          Vanilla eXchange, Inc.**
 **(a
          development stage company)**
  **STATEMENT
          OF CASH FLOWS**


**August
                  30, 2005****Nine
                  Months**
              
              **(Date
                  of Inception)****Ended
                  September**
              
              **to
                  September 30,****30,
                  2006**
              
              **2006****(Unaudited)**
              
              **(Unaudited)****Cash
                  flows from operating activities**Net
                  loss
              
              $
              (4,573,122
              )
              $
              (4,695,078
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Depreciation
                  and amortization
              
              
              528,375
              
              
              528,375Issuance
                  of shares and stock options for services
              
              
              1,248,090
              
              
              1,248,090Changes
                  in operating assets and liabilities:Prepaid
                  expenses and other current assets
              
              
              (63,736
              )
              
              (144,142
              )Other
                  assets
              
              
              (166,127
              )
              
              (166,127
              )Accounts
                  payable
              
              
              258,329
              
              
              331,538Other
                  current liabilities and accrued interest payable
              
              
              220,373
              
              
              316,765Net
                  cash used in operating activities
              
              
              (2,547,818
              )
              
              (2,580,579
              )**Cash
                  flows from investing activities**Purchase
                  of property and equipment
              
              
              (20,125
              )
              
              (20,125
              )Cash
                  used in investing activities
              
              
              (20,125
              )
              
              (20,125
              )**Cash
                  flows from financing activities**Cash
                  received for common stock
              
              
              329,746
              
              
              457,246Proceeds
                  from short-term loans payable
              
              
              2,146,000
              
              
              2,146,000Cash
                  provided by financing activities
              
              
              2,475,746
              
              
              2,603,246**Net
                  (decrease) increase in cash and cash equivalents**
              
              
              (92,197
              )
              
              2,542**Cash
                  at beginning of period**
              
              
              94,739
              
              
              —**Cash
                  and cash equivalents at end of period**
              
              $
              2,542
              
              $
              2,542**Supplemental
                  Disclosures**Income
                  taxes paid
              
              $
              1,161
              
              $
              1,161**Non-cash
                  financing activities**Warrants
                  issued for lease guarantee
              
              $
              421,696
              
              $
              421,696Warrants
                  issued for short-term loan guarantees
              
              $
              410,733
              
              $
              410,733Warrants
                  issued with short-term loans
              
              $
              680,615
              
              $
              680,615




***See
      notes to financial statements***







4


**Pure
          Vanilla eXchange, Inc.**
 **(a
          development stage company)**
  **Notes
          to Financial Statements**
 **September
          30, 2006**






**NOTE
      1. DESCRIPTION OF DEVELOPMENT STAGE OPERATIONS AND BASIS OF
      PRESENTATION**




Pure
      Vanilla eXchange, Inc. (the “Company”) was incorporated in the State of Nevada
      under the name Princeton Power Corporation on August 11, 2004. On November
      29,
      2004, the Company changed its name to NVS Entertainment, Inc (“NVS”).




The
      Company is the successor to the business of Pure Vanilla eXchange, Inc. (“Old
      Pure Vanilla”), a corporation organized under laws of the State of Nevada on
      August 30, 2005. Since inception, the Company has devoted most of its activities
      to establishing its business, including raising capital. Accordingly, the
      Company's financial statements are presented as a development stage company
      as
      defined in Statement of Financial Accounting Standards No. 7.




The
      Company provides an anonymous payment solution specifically designed to
      facilitate the purchase of products and services online.





On
      March
      13, 2006, the Company completed a recapitalization in the form of a “reverse
      merger” transaction with Old Pure Vanilla (See Note 2). In the reverse merger,
      Old Pure Vanilla merged into a wholly owned subsidiary of the Company. The
      Company acquired all the outstanding capital stock of Old Pure Vanilla and,
      in
      consideration, issued 39,927,452 shares of its common stock to Old Pure
      Vanilla’s shareholders. The Company retired all of its prior existing shares of
      common stock except for 10,568,634 shares of common stock retained by the
      original shareholders of NVS.




Placement
      agents and other advisors received an additional 1,056,863 shares of common
      stock valued at $792,647 for services rendered in connection with the reverse
      merger, which is included in organizational costs. After the closing of the
      reverse merger, there were 53,900,031 shares of common stock of the Company
      issued and outstanding.




For
      financial reporting purposes, Old Pure Vanilla is deemed to be the acquirer
      in
      the reverse merger transaction. Consequently, the assets and liabilities and
      the
      historical operations reflected in the financial statements are those of Old
      Pure Vanilla, and are recorded at the historical cost basis of Old Pure
      Vanilla.




The
      accompanying financial statements and related footnotes should be read in
      conjunction with the financial statements and related footnotes for the periods
      ended December 31, 2005 and March 31, 2006 contained in the Company’s
      registration statement on Form 10-SB filed with the U.S. Securities and Exchange
      Commission on May 26, 2006.




5
 
 **Pure
              Vanilla eXchange, Inc.**
 **(a
              development stage company)**
  **Notes
              to Financial Statements**
 **September
              30, 2006**


The
      financial statements have been prepared in accordance with accounting
      principles generally accepted in the United States of America for interim
      financial statements, the instructions to Form 10-QSB and Item 310 of Regulation
      S-B. Accordingly, these financial statements do not include all the information
      and footnotes required by accounting principles generally accepted in the United
      States of America for annual financial statements .
      In the
      opinion of management, all adjustments necessary for a fair presentation of
      such
      financial information have been included. All such adjustments are of a normal
      recurring nature. The results of operations for the nine and three months ended
      September 30, 2006 are not necessarily indicative of the results expected for
      the full year.




**Net
      loss per share**




Loss
      per
      share (“EPS”) is computed based on weighted average number of common shares
      outstanding and excludes any potential dilution. Diluted EPS reflects the
      potential dilution that could occur if stock option or warrants to issue common
      stock were exercised into common stock, which would then share in the earnings
      of the company. The shares that would be issued upon the exercise of stock
      options or warrants, totaling 3,112,000, are excluded from the calculation
      of
      net loss per share as their effect would be anti-dilutive.




**Restatement
      for presentation of reverse merger**




The
      financial statements have been restated to reflect the effects of the reverse
      merger as of the beginning of the periods presented as opposed to the date
      of
      the reverse merger. The effect was to retroactively restate the Statement of
      Stockholder’s Deficit, weighted average number of shares outstanding and net
      loss per share as of September 30, 2006. The effect of the restatement to the
      six months ended June 30, 2006 as previously reported was an increase in the
      weighted average number of shares outstanding from 34,811,300 to 48,846,392
      and
      a decrease in the basic and diluted net loss per share from a loss of $(0.09)
      per share to $(0.06) per share. There was no effect to the three months ended
      June 30, 2006 as previously reported.




**Recently
      issued accounting standards**




In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB
      157, Fair Value Measurements (SFAS 157), which clarifies that fair value is
      the
      amount that would be exchanged to sell an asset or transfer a liability in
      an
      orderly transaction between market participants. Further, the standard
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands certain disclosures about fair value
      measurements. SFAS 157 is effective for fiscal years beginning after November
      15, 2007. The Company does not expect the adoption of SFAS 157 to have a
      material impact on its financial position, results of operations or cash
      flows.




In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements (“SAB 108”). SAB
      108 provides guidance on how prior year misstatements should be taken into
      consideration when quantifying misstatements in current year financial
      statements for purposes of determining whether the current year’s financial
      statements are materially misstated. SAB 108 is effective for fiscal years
      ending after November 15, 2006. The Company does not expect the provisions
      of
      SAB 108 to have a material impact on its financial position, results of
      operations or cash flows.




6
 
 **Pure
              Vanilla eXchange, Inc.**
 **(a
              development stage company)**
  **Notes
              to Financial Statements**
 **September
              30, 2006**


**NOTE
      2. REVERSE MERGER**




On
      March
      13, 2006, NVS Entertainment, Inc., a Nevada Corporation ("NVS"), completed
      a
      reverse merger transaction, in which it caused NVS Acquisition Corp., a Nevada
      corporation and newly created, wholly owned subsidiary of NVS, to be merged
      with
      and into Pure Vanilla eXchange, Inc., a Nevada corporation ("Old Pure Vanilla").
      As a result of the merger, the Old Pure Vanilla became a wholly owned subsidiary
      of NVS, with Old Pure Vanilla's former security holders acquiring a majority
      of
      the outstanding shares of NVS's common stock. For financial reporting purposes,
      Old Pure Vanilla is deemed to be the acquirer in the reverse merger transaction.
      Consequently, the assets and liabilities and the historical operations reflected
      in the financial statements are those of Old Pure Vanilla and are recorded
      at
      the historical cost basis of Old Pure Vanilla. Old Pure Vanilla was merged
      into
      NVS on April 12, 2006. In connection with the latter merger, NVS changed the
      name of the company to Pure Vanilla eXchange, Inc.




NVS
      was a
      publicly traded company whose shares traded on the “Pink Sheets” and which had
      at the time of the reverse merger nominal assets and liabilities and no
      revenues. As part of the merger, NVS issued to the stockholders of Old Pure
      Vanilla shares of NVS common stock representing approximately 80% of the NVS
      shares outstanding, before giving effect to the shares issued to placement
      agents and other advisors. Old Pure Vanilla paid to the controlling shareholder
      of NVS $225,000 for 39,927,452 shares of common stock of NVS. That amount is
      included in organizational costs. Old Pure Vanilla's management at the time
      of
      the reverse merger assumed their same positions with the publicly traded
      company.




**NOTE
      3. GOING CONCERN**




Since
      inception, the Company has recorded aggregate losses from operations of
      $4,695,078 and has incurred total negative cash flow from operations of
      $2,580,579. As described in Note 4, the Company secured additional debt
      financing during the current quarter and as of September 30, 2006 the Company
      had cash and cash equivalents of $2,542.




Based
      upon the Company’s current financial condition, subsequent short-term financings
      as described in Note 9 below, cash forecast, and operating plan, the Company
      believes that it has adequate cash resources to sustain its operations until
      December 1, 2006. However, the Company’s continued existence is dependent upon
      several factors, including the ability to achieve profitability from the sale
      of
      the Company’s products. Until such time as the Company can rely on profits
      generated from operations, it will continue to seek additional sources of
      financing through private offerings. Accordingly, if the Company fails to obtain
      additional financing, it will be required to substantially reduce and defer
      payments of operating expenses.




7
 
 **Pure
              Vanilla eXchange, Inc.**
 **(a
              development stage company)**
  **Notes
              to Financial Statements**
 **September
              30, 2006**


The
      accompanying unaudited financial statements have been prepared on the basis
      that
      the Company will continue as a going concern, which assumes the realization
      of
      assets and satisfaction of liabilities in the normal course of business. The
      uncertainties regarding the availability of continued financing and commencement
      of adequate commercial revenues raise substantial doubt about the Company’s
      ability to continue as a going concern. The financial statements do not include
      any adjustments that might result from the outcome of this
      uncertainty.




**NOTE
      4. SHORT-TERM FINANCING**




During
      the nine months ended September 30, 2006, the Company completed transactions
      with several private investors to provide short-term debt financing in the
      aggregate amount of $2,146,000, evidenced by promissory notes (the “Notes”)
      issued to the investors, including $546,000 from Jed Schutz, a principal
      shareholder and director of the Company. The Company is using the proceeds
      of
      the financing to fund start-up activities including the promotion of and the
      launch of its web site, its stored value card and related working capital
      requirements, and to pay legal and other professional fees related to the
      financing. Interest on each Note accrues at a rate of 15% per year and is
      payable monthly, with the principal becoming due on the earlier of the nine
      month anniversary of the date of issuance (ranging from February 1, 2007 thru
      November 1, 2007) or upon the Company’s first underwritten public offering of
      its common stock. The Notes provide for an interest rate of 18% in the event
      of
      a default. As
      of
      September 30, 2006, interest in the amount of $97,533 payable on $1,475,000
      in
      principal amount of the Notes is more than ten days past due. Each holder of
      a
      Note on which interest is more than ten days past due has the right, upon notice
      to the Company, to declare the Note and all interest thereon immediately due
      and
      payable. As of September 30, 2006, the Company has not received any such notice
      from a Note holder. In
      connection with the issuance of each Note, the Company issued to the investor
      a
      warrant (a “Warrant”) to purchase that number of shares of common stock at an
      exercise price of $2.00 per share such that the total consideration paid upon
      exercise in full of the Warrant equals 25% of the principal amount of the Note.
      As of September 30, 2006, the Company has issued to the Note holders Warrants
      to
      purchase 268,250 shares of common stock (See Note 7).




The
      Company’s obligations under $1,475,000 of the Notes are personally guaranteed by
      Jed Schutz. In consideration of this guarantee, the Company issued to Mr. Schutz
      warrants to purchase 147,500 shares of common stock at an exercise price of
      $2.00 per share (See Note 7).




As
      of
      September 30, 2006 the financial statements include $123,873 of accrued interest
      payable.




**NOTE
      5. OPERATING LEASE**




On
      April
      25, 2006 the Company entered into a non-cancelable operating lease. Under the
      terms of the lease, the Company is responsible for its share of common area
      and
      operating expenses. The term of the lease started on May 15, 2006 and ends
      on
      January 30, 2010. As of September 30, 2006, minimum lease commitments required
      under the lease are as follows:




8
 
 **Pure
              Vanilla eXchange, Inc.**
 **(a
              development stage company)**
  **Notes
              to Financial Statements**
 **September
              30, 2006**


2006
              
              
              
              
              $
              80,5962007
              
              
              
              
              
              322,3832008
              
              
              
              
              
              322,3832009
              
              
              
              
              
              322,3832010
              
              
              
              
              
              26,865Total
                  minimum lease commitments
              
              
              
              
              $
              1,074,610




The
      Company’s obligations under the lease agreement are personally guaranteed by Jed
      Schutz, a principal shareholder and director of the Company. In consideration
      of
      this guarantee, the Company issued to Mr. Schutz warrants to purchase 176,250
      shares of common stock at an exercise price of $2.00 per share (See Note
      7).




**NOTE
      6. INCENTIVE COMPENSATION PLAN**




The
      Company’s 2006 Incentive Compensation Plan provides for grants of stock options
      to officers, directors, employees and independent contractors of the Company.
      Under the plan, the total number of shares of common stock that may be subject
      to the granting of awards under the plan shall be equal to 7,500,000
      shares.




The
      fair
      value of the options granted during the nine months ended September 30, 2006
      were estimated at the grant date using the Black-Scholes option pricing model
      and recorded as expense over the respective life of the option. Significant
      assumptions used in the Black-Scholes model are the current rate of the U.S.
      Treasury security that corresponds with the maturity of each warrant, i.e.
      the
      risk free rate and 60% for volatility. The risk-free rate used in the model
      was
      4.77%.




As
      of
      September 30, 2006, stock options to purchase 2,500,000 shares of common stock
      have been granted under the plan. All of the options are currently outstanding.
      During the nine months ended September 30, 2006, the Company recorded $439,693
      of expense related to the plan.




**NOTE
      7. WARRANTS**





During
      the nine months ended September 30, 2006, the Company issued warrants to
      purchase 415,750 shares of common stock in connection with the short-term
      financing as described in Note 4. The fair value of the warrants was estimated
      to be $1,041,842 and recorded as deferred loan costs and loan discount. Deferred
      loan costs and discount are amortized over the life of the loan.




During
      the nine months ended September 30, 2006, the Company issued warrants to
      purchase 20,000 shares of common stock to two advisors as finder’s fees. The
      fair value of the warrants was estimated to be $49,506 and recorded as deferred
      loan costs. Deferred loan costs are amortized over the life of the
      loan.




9
 
 **Pure
              Vanilla eXchange, Inc.**
 **(a
              development stage company)**
  **Notes
              to Financial Statements**
 **September
              30, 2006**


During
      the nine months ended September 30, 2006, the Company issued warrants to
      purchase 176,250 shares of common stock in connection with the guarantee of
      the
      Company’s obligations under the lease described in Note 5. The fair value of the
      warrants was estimated to be $421,696 and recorded as deferred lease costs.
      Deferred lease costs are amortized over the term of the lease.




The
      fair
      value of the warrants granted were estimated at the grant date using the
      Black-Scholes option pricing model and recorded as expense over the respective
      life of the debt. Significant assumptions used in the Black-Scholes model are
      the current rate of the U.S. Treasury security that corresponds with the
      maturity of each warrant, i.e. the risk free rate and 60% for volatility. The
      risk-free rates used in the model ranged from 4.58% to 5.25%.




During
      nine months ended September 30, 2006, amortization expense related to the
      deferred loan costs was $478,903, and amortization expense related to deferred
      lease costs was $47,920.




At
      September 30, 2006, there were warrants to purchase 612,000 shares of common
      stock outstanding.




**NOTE
      8. RELATED PARTY TRANSACTIONS**




On
      November 1, 2005 the Company entered into a services arrangement with Nimble
      Group Inc. for the provision of management resources and office space. The
      arrangement had an initial term of three months which automatically renews
      every
      three months if not terminated by either party. The Company, at its own
      discretion, will decide on the services that need to be provided. The office
      space was charged at $1,750 per office and $600 per desk. Office space costs
      were paid to Nimble Group through May 15, 2006 at which time the Company leased
      its own premises as described in Note 5. Nimble Group is controlled by Jed
      Schutz who is a principal shareholder and director of the Company. Under this
      arrangement, Nimble Group charged the Company $430,770 during the nine months
      ended September 30, 2006. At September 30, 2006 there remained an unpaid balance
      of $64,575, representing the September invoice from Nimble Group.




Effective
      July 1, 2006 the Company rented space to Nimble Group in the newly leased
      premises referred to in Note 5 on an as-used basis under the same terms as
      noted
      above. Under this arrangement, the Company charged Nimble Group $18,000 during
      the nine months ended September 30, 2006.




On
      January 10, 2006 the Company entered into a Software License and Services
      Agreement with Nimble Group, Inc. This agreement relates to the use by the
      Company of Nimble Group’s software to process prepaid, debit and stored value
      card transactions. Nimble Group grants the Company a perpetual, limited,
      non-exclusive, non-transferable license. In consideration of the license rights
      granted under this agreement the Company paid Nimble Group: a) an initial
      license fee of $500,000, and b) will pay an amount equal to ten percent (10%)
      of
      gross revenue generated through the use of said licensed software. The Company
      paid the initial license fee of $500,000 in full at September 30, 2006. The
      initial license fee represents the payment of Nimble Group’s research and
      development costs incurred on behalf of the Company for software to be utilized
      by the Company and has been expensed as software licensing fees.




10
 
 **Pure
              Vanilla eXchange, Inc.**
 **(a
              development stage company)**
  **Notes
              to Financial Statements**
 **September
              30, 2006**


As
      of
      January 1, 2006, the Company entered into a Consulting Agreement with NG
      Outsourcing, Inc., a corporation that is wholly-owned by the Company’s
      President. Under that agreement, NG Outsourcing provided the services of its
      employee, the Company’s President, to provide such services as would ordinarily
      be rendered by a corporate president and the Company paid NG Outsourcing fees
      of
      $20,000 per month. The Company also agreed to award 125,000 shares of the
      Company’s common stock at a purchase price of $.01 per share to an NG
      Outsourcing employee and a director of the Company. That agreement expired
      on
      June 30, 2006.




On
      February 21, 2006, the Company issued 1,575,000 shares (including the 125,000
      shares discussed above) of common stock to consultants, including 700,000 shares
      to the Company’s Chief Executive Officer, for services, pursuant to a Board of
      Directors resolution dated December 5, 2005. In connection with these issuances
      the Company accrued $15,750 of compensation expense at December 31,
      2005.




As
      of
      September 30, 2006, the Company has completed transactions with several private
      investors to provide short-term debt financing (as described in Note 4 above),
      including $546,000 from Jed Schutz, a principal shareholder and director of
      the
      Company. The Company has issued warrants to purchase 68,250 shares of common
      stock at an exercise price of $2.00 per share in connection with these loans.
      Mr. Schutz personally guaranteed $1,475,000 of short-term debt (as described
      in
      Note 4 above). In consideration of this guarantee, the Company issued to Mr.
      Schutz warrants to purchase 147,500 shares of common stock at an exercise price
      of $2.00 per share. The Company’s obligations under its’ lease agreement are
      personally guaranteed by Jed Schutz. In consideration of this guarantee, the
      Company issued to Mr. Schutz warrants to purchase 176,250 shares of common
      stock
      at an exercise price of $2.00 per share




**NOTE
      9. SUBSEQUENT EVENTS**




During
      the period of October 1, 2006 through November 13, 2006, the Company completed
      transactions with several private investors to provide short-term debt financing
      in the aggregate amount of $390,000, evidenced by promissory notes (the “Notes”)
      issued to the investors, including $65,000 from Jed Schutz, a principal
      shareholder and director of the Company. The Company continues to use the
      proceeds of this additional financing to fund start-up activities including
      the
      promotion of and the launch of its web site, its stored value card and related
      working capital requirements, and to pay legal and other professional fees
      related to the financing. Interest on each Note accrues at a rate of 15% per
      year and is payable monthly, with the principal becoming due on the earlier
      of
      the first anniversary of the date of issuance or upon the Company’s first
      underwritten public offering of its common stock. The Notes provide for an
      interest rate of 18% in the event of a default. In connection with the issuance
      of each Note, the Company issued to the investors a warrant (a “Warrant”) to
      purchase that number of shares of common stock at an exercise price of $2.00
      per
      share such that the total consideration paid upon exercise in full of the
      Warrant equals 25% of the principal amount of the Note. The Company issued
      to
      the Note holders Warrants to purchase 48,750 shares of common
      stock.




11


PART
      I – Financial
      Information




**Item
      2. Management Discussion and Analysis**




The
      matters discussed in this Form 10-QSB contain certain forward-looking statements
      and involve risks and uncertainties including changing market conditions,
      competitive and regulatory matters, etc. detailed in the disclosures contained
      in this Form 10-QSB and other regulatory filings with the U.S. Securities and
      Exchange Commission made by the Company from time to time. The discussion of
      the
      Company’s liquidity, capital resources and results of operations, including
      forward looking statements pertaining to such matters, does not take into
      account the effects of any changes to the Company’s operations. Accordingly,
      actual results could differ materially from those projected in the
      forward-looking statements as a result of a number of factors, including those
      identified herein. This item should be read in conjunction with the financial
      statements and other items contained elsewhere in this report.




**Overview**




Pure
      Vanilla eXchange, Inc. (the “Company”) was incorporated in the State of Nevada
      under the name Princeton Power Corporation on August 11, 2004. On November
      29,
      2004, we changed our name
      to NVS Entertainment, Inc.





We
      are
      the successor to the business of Pure Vanilla eXchange, Inc. (“Old Pure
      Vanilla”), a corporation organized under the laws of the State of Nevada on
      August 30, 2005. On March 13, 2006, Old Pure Vanilla was merged with our
      wholly-owned subsidiary, NVS Acquisition Corp., a Nevada corporation which
      was
      incorporated on March 1, 2006. Old Pure Vanilla was the surviving entity and
      became our wholly-owned subsidiary in that merger. In the merger, the
      shareholders of Old Pure Vanilla became the holders of approximately 80% of
      our
      issued and outstanding shares. Old Pure Vanilla was merged into us on April
      12,
      2006. In connection with the latter merger, we changed our name to Pure Vanilla
      eXchange, Inc.





Under
      the
      name NVS Entertainment, we conducted the business of film acquisition,
      completion and distribution. That business, which had only nominal expenses,
      was
      discontinued on or about March 13, 2006. Our sole remaining business is the
      business of providing anonymous payment products that enable consumers to pay
      for products and services online.





**Plan
      of Operation**





We
      intend
      to provide money transfer and payment services using stored value cards and
      an
      electronic payment system that enables consumers to pay anonymously for the
      products and services they wish to buy online. Our products and services will
      be
      specifically designed for use in paying for products and services
      online.





Using
      the
      patent-pending technology that we have licensed from Nimble Group and other
      technology that we intend to develop, consumers will be able to purchase goods
      and services by using either an online pV Account or a pV Card. Monetary value
      can be stored in pV Accounts online. Monetary value will be able to be stored
      on
      pV Cards at retail outlets in the United States. The use of pV Accounts and/or
      pV Cards will permit consumers to purchase products and services in a safe
      and
      secure environment without having to compromise their identity or
      credit.





12
 
 PART
          I – Financial
          Information


Our
      anonymous cash transactions will eliminate the merchant’s exposure to
      charge-backs, reduce processing fees and significantly accelerate cash flow.
      We
      will support recurring and “pay per minute” billing and provide dynamic
      reporting to the merchants. We will also address current challenges that
      consumers face, such as user anonymity, credit card charge-backs and fraud.





Our
      revenue model has three components: loading fees, account management fees and
      processing fees.





Loading
      fees are charged to a consumer who purchases a pV Card in a store or funds
      an
      online account. We will charge a $4 load fee to the consumer in a store. That
      fee is shared among us, the retailer and the distributor. We will receive 100%
      of the $2 online load fee.





We
      may
      charge an account management fee to pV Cardholders and consumers having pV
      Accounts if there are no transactions on the relevant card or in the relevant
      account where permitted by law.





Online
      merchants will be charged a processing fee that is a percentage of the revenue
      they receive from transactions that involve the use of pV Cards and pV Accounts.
      We currently do not intend to charge merchants a set-up fee or require a cash
      reserve, although we may do so in the future. We intend to evaluate the
      sufficiency of our fee structure on an ongoing basis in light of our
      experience.





Our
      costs
      for online transactions will be comprised of technology licensing costs and
      bank
      fees. We have licensed the core technology that we use from Nimble Group and
      pay
      Nimble Group a license fee.





In
      April
      2006, we completed a Beta test of our products. Since then, we have begun to
      sign up websites to accept our products for payment for the goods and services
      that they sell. On June 23, 2006 we began providing our product to
      consumers.





In
      June
      2006 we began to advertise on certain channels of Sirius Radio such as Howard
      Stern, Playboy Radio and Maxim Radio to attract both consumers and websites.
      We
      plan to attend and exhibit at industry and trade shows and intend to sponsor
      selected industry events to sell cards to consumers and to continue our brand
      building and networking efforts within the industry. We will also continue
      to
      promote our brand through the issuance of press releases and articles on
      websites and in trade publications.


.


Over
      the
      next twelve months we expect to introduce two additional products. We believe
      that there will be a market for a User ID and Password Management service and
      an
      Affiliate Program Management service. We intend to introduce such services
      in
      order to match the value-added services of our competitors. We intend to
      continually make adjustments and improvements in our products, software and
      marketing efforts. Subject to raising additional capital, the Company
      anticipates that it may need to hire a number of additional employees. The
      Company’s future performance will depend highly upon its ability to attract and
      retain experienced personnel. The hiring of such personnel is competitive and
      there can be no assurance that the Company will be able to attract and retain
      qualified personnel for the development of its business





13
 
 PART
          I – Financial
          Information


The
      execution of our plan of operation is dependent upon several factors, including
      raising sufficient working capital to allow us to implement our plans and the
      successful launch of our online and stored value card services. There can be
      no
      assurance that we will be successful in doing so. We have generated revenues
      of
      $621 since our inception. From inception through September 30, 2006 we incurred
      a net loss of $4,695,078 and a total negative cash flow from operations of
      $2,580,579. Our continued existence is dependent upon several factors, including
      raising additional capital, the successful launch of our online and stored
      value
      card services and our ability to achieve profitability from the sale of our
      services. These matters raise substantial doubt about our ability to continue
      as
      a going concern. Our financial statements do not include any adjustments that
      might result from the outcome of this uncertainty.





In
      order
      to continue providing our products and services beyond December 1, 2006,
      and to execute our business plan, we must continue to raise capital. There
      can
      be no assurance that additional financing will be available, or if available,
      that such financing will be on favorable terms. Any failure to secure additional
      financing could impair our ability to achieve our business strategy. Even if
      we
      are successful in raising capital, there can be no assurance that we will have
      sufficient funds or successfully achieve our plans to a level that will have
      a
      positive effect on our results of operations or financial condition. Our ability
      to execute our growth strategy is contingent upon our having sufficient capital
      as well as other factors, including our ability to further increase consumer
      awareness and adoption of our products, our ability to sign up websites that
      accept our products as a form of payment, general economic and industry
      conditions, our ability to recruit, train and retain a qualified sales,
      marketing and customer service staff, and other factors, many of which are
      beyond our control. Even if our revenues and earnings grow rapidly, that growth
      may significantly strain our management and our operational and technical
      resources. If we are successful in obtaining greater market penetration with
      our
      products, we will be required to manage an increasing volume of transactions
      on
      a timely basis at a reasonable cost to us. No assurance can be given that we
      can
      meet increased demand or that we will be able to manage our transactions on
      a
      timely and cost-effective basis.





**Critical
      Accounting Policies**





Our
      financial statements and accompanying notes have been prepared in accordance
      with accounting principles generally accepted in the United States. The
      preparation of these financial statements requires we make estimates, judgments
      and assumptions that affect the reported amounts of assets, liabilities,
      revenues and expenses. Management continually evaluates the accounting policies
      and estimates it uses to prepare the financial statements. We base our estimates
      on historical experience and assumptions believed to be reasonable under current
      facts and circumstances. Significant estimates include the valuation of shares,
      stock options and warrants issued. Actual amounts and results could differ
      from
      these estimates made by management.





We
      have
      not entered into any transactions with unconsolidated entities in which we
      have
      financial guarantees, subordinated retained interests, derivative instruments
      or
      other contingent arrangements that expose us to material continuing risks,
      contingent liabilities or any other obligations under a variable interest in
      an
      unconsolidated entity that provides us with financing, liquidity, market risk
      or
      credit risk support.




14
 
 PART
          I – Financial
          Information


**Results
      of Operations**




**For
      the three months ended September 30, 2006.**




**Net
      Loss.** The
      Company had a net loss of $1,561,278 for the three months ended September 30,
      2006.




**Operating
      Expenses.** Operating expenses were $1,129,929 for the three months ended September 30,
      2006.




Operating
      expenses are comprised of expenses of the Company’s corporate office. Included
      in operating expenses for the three months ended September 30, 2006 is $365,735
      of compensation expense for management and consultants, and $175,548 of non-cash
      payments in the form of warrants and options. Other items included in the
      Company’s operating expenses are marketing costs of $245,974, legal and
      accounting fees of $147,813, travel and entertainment expenses of $73,765,
      and
      office related expenses such as rent, telephone and general supplies of
      $121,094.




**Interest
      Expense** .
      Interest expense was $431,970 for the three months ended September 30, 2006.
      Interest expense for the three months ended September 30, 2006 is comprised
      of
      $78,852 of accrued interest on short-term debt, amortization of deferred loan
      costs of $353,118.




**For
      the nine months ended September 30, 2006.**




**Net
      Loss.** The
      Company had a net loss of $4,573,122 for the nine months ended September 30,
      2006 and a net loss since inception of $4,695,078.




**Software
      Licensing Fees.** Software
      licensing fees of $500,000 consist of the initial license fee paid to Nimble
      Group under the Services Agreement entered into between the two parties on
      November 1, 2005.




**Operating
      Expenses.** Operating expenses were $2,433,321 for the nine months ended September 30,
      2006
      and $2,555,277 since inception.




Operating
      expenses are comprised of expenses of the Company’s corporate office. Included
      in operating expenses for the nine months ended September 30, 2006 is $753,820
      of compensation expense for management and consultants, and $439,694 of non-cash
      payments in the form of warrants and options. Other items included in the
      Company’s operating expenses are marketing costs of $594,809, legal and
      accounting fees of $289,672, insurance of $24,833, travel and entertainment
      expenses of $107,616, and office related expenses such as rent, telephone and
      general supplies of $222,877.




**Organizational
      Costs** .
      In
      connection with the reverse merger in March 2006, the Company paid $225,000
      to
      the former owners of NVS Entertainment, Inc. to repurchase 39,927,452 of their
      NVS shares which were then cancelled at the closing of the reverse merger.
      Also
      included in organization costs are non-cash recapitalization expenses of
      $792,647 related to the issuance of additional shares in connection with the
      reverse merger. These costs were recorded for accounting purposes as
      organizational costs.




15
 
 PART
          I – Financial
          Information


**Interest
      Expense** .
      Interest expense was $622,775 for the nine months ended September 30, 2006
      and
      since inception. Interest expense is comprised of $123,873 of accrued interest
      on short-term debt, amortization of deferred loan costs of $478,902, and other
      financing costs of $20,000.




**Liquidity
      and Capital Resources**




As
      of
      September 30, 2006, the Company had cash and cash equivalents of
      $2,542.




During
      the nine months ended September 30, 2006, the Company used net cash of
      $2,547,818 for operating activities. Additional cash of $20,125 was used to
      purchase property and equipment (investing activity). Cash used for operating
      and investing activities was substantially offset by net cash proceeds of
      $2,146,000 raised through short-term debt and $329,746 raised from the issuance
      of stock (financing activities).




During
      the nine months and three months ended September 30, 2006, the Company completed
      transactions with private investors to provide short-term debt financing in
      the
      aggregate amount of $2,146,000 and $175,000 respectively. This short-term debt
      financing is evidenced by promissory notes (the “Notes”) issued to the
      investors. The Company is using the proceeds of the financing to fund start-up
      activities including the promotion of and the launch of the stored value card
      and related working capital requirements, and pay legal and other professional
      fees related to the financing. Interest on each Note accrues at a rate of 15%
      per year and is payable monthly, with the principal becoming due on the earlier
      of the nine month anniversary of the date of issuance or upon the Company’s
      first underwritten public offering of its common stock. The Notes provide for
      an
      interest rate of 18% in the event of a default. Currently, $1,475,000 of the
      notes are in default as interest has not been paid. Notice of default has not
      been received from any of the note holders.




Based
      upon the Company’s current financial condition, subsequent short-term financings
      as described in Note 9 to the financial statements above, cash forecast and
      operating plan, the Company believes that it has adequate cash resources to
      sustain its operations until December 1, 2006. The Company is anticipating
      significant expenditures related to the introduction of its products and
      services to the consumer and business-to-business market places in the areas
      of
      marketing and product development. In addition, the Company anticipates a
      continued need to fund the general operations of the business until such time
      as
      the revenues derived from the Company’s products exceed the expenditures.
      Accordingly, the Company plans to raise additional capital through the future
      issuance of stock or debt to support the development and expansion of our
      business. Additional equity financings are likely to be dilutive to holders
      of
      our common stock and debt financing, if available, and may involve significant
      payment obligations and covenants that restrict how we operate our business.
      We
      may not be successful in our efforts to raise additional capital. Even after
      we
      begin to sell our products, we do not yet know if our products will be
      successful. At the present time, we have no commitments for any additional
      financing, and there can be no assurance that, if needed, additional capital
      will be available to us on commercially acceptable terms or at all. If we are
      unable to raise funds as needed, we may need to curtail expenses, reduce planned
      research and development and sales and marketing efforts, forego business
      opportunities and cease operations. The notes to financial statements
      accompanying this report for the nine months ended September 30, 2006, include
      an explanatory paragraph relating to the uncertainty of our ability to continue
      as a going concern, which may make it more difficult for us to raise additional
      capital when needed.




16
 
 PART
          I – Financial
          Information


**Item
      3. Controls and Procedures**




Disclosure
      controls and procedures are our controls and other procedures that are designed
      to ensure that information required to be disclosed by us in the reports that
      we
      file or submit under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), is recorded, processed, summarized and reported, within the
      time periods specified in the U.S. Securities and Exchange Commission’s rules
      and forms. Disclosure controls and procedures include, without limitation,
      controls and procedures designed to ensure that information required to be
      disclosed by us in the reports that we file under the Exchange Act is
      accumulated and communicated to our management, including principal executive
      officer and principal financial officer, as appropriate, to allow timely
      decisions regarding required disclosure.




Our
      Chief
      Executive Officer and Principal Accounting Officer have evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures as of the end of the period covered by this report. Based upon our
      evaluation of the effectiveness of the design and operation of our disclosure
      controls and procedures, our Chief Executive Officer and Principal Accounting
      Officer have concluded that as of the end of the period covered by this report,
      our disclosure controls and procedures were effective.




There
      has
      been no change in the Company’s internal controls over financial reporting
      during the fiscal quarter ended September 30, 2006 that has materially affected,
      or is reasonably likely to materially affect, the Company’s internal controls
      over financial reporting.






17




PART
      II – Other
      Information




**Item
      1 - Legal Proceeding**




**None**




**Item
      2 - Unregistered Sales of Equity Securities and Use of
      Proceeds**




During
      the period covered by this Quarterly Report on Form 10-QSB, other than
      unregistered sales of equity securities previously reported on a Current Report
      on Form 8-K, we have made the following unregistered sales of equity
      securities:




We
      issued
      to two private investors three-year warrants to purchase, in the aggregate,
      21,875 shares of common stock at an exercise price of $2.00 per share. The
      warrants were issued in consideration of the investors loaning to us the
      aggregate amount of $175,000. No commissions were paid or payable with respect
      to this transaction.




Exemption
      from registration of all of the foregoing securities is claimed under Section
      4(2) of the Securities Act of 1933, as amended (the “Act”). Exemption is claimed
      based, among other things, upon representations made by each of the purchasers
      of such securities that include, among other things, a representation from
      each
      such person that such person is an Accredited Investor within the meaning of
      Regulation D promulgated under the Act. The securities issued in the
      transactions above were not offered or sold by any form of general solicitation
      or general advertising.




**Item
      3 - Default Upon Senior Securities**




**None**




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




**None**




**Item
      5 - Other Information**




During
      the three months ended September 30, 2006, the Company completed transactions
      with two private investors to provide short-term debt financing in the aggregate
      amount of $175,000, evidenced by promissory notes issued to the investors (the
      “Notes”). The Company is using the proceeds of the financing to fund start-up
      activities including the promotion of and the launch of the stored value card
      and related working capital requirements, and pay legal and other professional
      fees related to the financing. Interest on each Note accrues at a rate of 15%
      per year and is payable monthly, with the principal becoming due on the earlier
      of nine months from the date of issue or upon the Company’s first underwritten
      public offering of its common stock. The Notes may be prepaid at any time and
      from time to time, in whole or in part without premium or penalty. The Notes
      provide for an interest rate of 18% in the event of a default.




18
 
 PART
          II – Other
          Information


Under
      the
      terms of the Notes, the holder may declare a Note immediately due and payable
      upon the occurrence of any of the following events of default: (i) the Company's
      failure to pay principal and interest when within ten days after the same is
      due, or failure to perform any other obligation under the Note or under any
      other agreement with or obligation to the holder, (ii) the Company's insolvency
      or liquidation or a bankruptcy event; (iii) the Company's failure to conduct
      business in the ordinary course, dissolution or termination of existence; (iv)
      any sale, transfer, pledge, lien, grant of a security interest or other
      disposition, outside the ordinary course of business, in or of any material
      assets or a material portion of the assets or business of the Company; (v)
      any
      declaration or payment by the Company of any dividend or distribution with
      respect to or redemption of its capital stock; (vi) the entry of money judgment
      or similar process in excess of $100,000 if such judgment remains unvacated
      for
      30 days; or (vii) Company’s failure to comply in all material respects with all
      applicable laws, rules, regulations or orders.




In
      connection with the issuance of each Note, the Company issued to the investors
      warrants to purchase in the aggregate 21,875 shares of common stock at an
      exercise price of $2.00 per share.




**None**




**Item
      6 - Exhibits**




***Exhibits***




31.1
            Certification
                of Principal Executive Officer Pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002




31.2
            Certification
                of Principal Financial and Accounting Officer Pursuant to section
                302 of
                the Sarbanes-Oxley Act of 2002




32.1
            Certificate
                Pursuant To 10 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley
                Act
                of 2002.







19


PART
        II – Other
        Information


**SIGNATURES**









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




Date:
      November 14, 2006




**PURE
              VANILLA EXCHANGE, INC.**By:
            /s/ Florian
              SchuhbauerFlorian
              Schuhbauer, President(Principal
              Executive Officer)


By:
            /s/ John
              A.
              CookJohn
              A. Cook(Principal
              Financial Officer)





20