**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**March
                  31, 2007**
              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 o 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 o
 
 As
        of May
        12, 2007, the Company had 70,826,542 shares of common stock, par value $0.001
        per share, issued and outstanding.
 
 Transitional
        Small Business Disclosure Format. Yes o  No x
  
 
  **Index**
 **Page****Part
                    I. Financial Information**Item
                    1. Financial StatementsConsolidated
                    Balance Sheets as of March 31, 2007 (unaudited) and December
                    31,
                    2006
                
                1Consolidated
                    Statements of Operations for the three months ended March 31,
                    2007and
                    2006 (unaudited)
                
                2Consolidated
                    Statement of Changes in Stockholders’ Deficit for the three months
                    endedMarch
                    31, 2007 (unaudited)
                
                3Consolidated
                    Statements of Cash Flows for the three months ended March 31,
                    2007and
                    2006 (unaudited)
                
                4Notes
                    to the Consolidated Financial Statements (unaudited)
                
                5Item
                    2. Management's Discussion and Analysis or Plan of
                    Operation
                
                11Item
                    3. Controls and Procedures
                
                15**Part
                    II. Other Information**Item
                    1. Legal Proceedings
                
                17Item
                    2. Changes in Securities
                
                17Item
                    3. Defaults upon Senior Securities
                
                17Item
                    4. Submission of Matters to a Vote of Security Holders
                
                17Item
                    5. Other Information
                
                17Item
                    6. Exhibits
                
                18Signatures
                
                19
 **PURE
                    VANILLA EXCHANGE, INC. AND SUBSIDIARY****CONSOLIDATED
                    BALANCE SHEETS**
  **March
                      31, 2007**
                  
                  **December
                      31,2006**(Unaudited)**ASSETS**Current
                      Assets:Cash
                  
                  $
                  353,918
                  
                  $
                  869,232Customer
                      deposits
                  
                  
                  11,782
                  
                  
                  12,426Accounts
                      receivable
                  
                  
                  52,182
                  
                  
                  58,510Prepaid
                      expenses and other current assets
                  
                  
                  194,286
                  
                  
                  371,581Deferred
                      costs, net
                  
                  
                  358,758
                  
                  
                  531,467Total
                      Current Assets
                  
                  
                  970,926
                  
                  
                  1,843,216Property
                      and equipment, net
                  
                  
                  106,602
                  
                  
                  124,255Deferred
                      costs and other assets
                  
                  
                  389,132
                  
                  
                  419,207**TOTAL
                      ASSETS**
                  
                  $
                  1,466,660
                  
                  $
                  2,386,678**LIABILITIES
                      AND STOCKHOLDERS' DEFICIT**Current
                      Liabilities:Accounts
                      payable
                  
                  $
                  903,543
                  
                  $
                  892,565Short-term
                      loans and accrued interest payable, net
                  
                  
                  6,311,717
                  
                  
                  5,689,715Other
                      current liabilities
                  
                  
                  1,091,619
                  
                  
                  2,671,119Total
                      Current Liabilities
                  
                  
                  8,306,879
                  
                  
                  9,253,399Non-current
                      Liabilities:Long-term
                      loans and accrued interest payable
                  
                  
                  2,052,050
                  
                  
                  731,839CommitmentStockholders'
                      Deficit:Common
                      Stock, $0.001 par value; 500,000,000 sharesauthorized;
                      70,826,542 and 70,708,542 sharesissued
                      and outstanding in 2007 and 2006, respectively
                  
                  
                  70,827
                  
                  
                  70,709Additional
                      paid-in-capital
                  
                  
                  24,993,340
                  
                  
                  23,400,757Accumulated
                      deficit
                  
                  
                  (33,956,436
                  )
                  
                  (31,070,026
                  )Total
                      Stockholders' Deficit
                  
                  
                  (8,892,269
                  )
                  
                  (7,598,560
                  )**TOTAL
                      LIABILITIES AND STOCKHOLDERS' DEFICIT**
                  
                  $
                  1,466,660
                  
                  $
                  2,386,678
 ***See
        notes to consolidated financial statements***
  1


**PURE
                  VANILLA EXCHANGE, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF OPERATIONS****(Unaudited)**
  **Three
                  Months Ended****March
                  31,****2007**
              
              **2006**Sales
              
              $
              67,584
              
              $
              10,803Operating
                  expenses:Processing
                  fees
              
              
              (32,009
              )
              
              (6,854
              )Other
                  operating expenses
              
              
              (2,674,015
              )
              
              (1,229,732
              )Loss
                  from operations before other expenses
              
              
              (2,638,440
              )
              
              (1,225,783
              )Other
                  income and (expense):Change
                  in fair value of warrant liability
              
              
              1,401,440
              
              
              -Organizational
                  costs
              
              
              -
              
              
              (1,017,647
              )Interest
                  expense
              
              
              (1,649,409
              )
              
              (386,799
              )Total
                  other expenses
              
              
              (247,969
              )
              
              (1,404,446
              )Net
                  Loss
              
              $
              (2,886,409
              )
              $
              (2,630,229
              )Basic
                  and diluted net loss per share
              
              $
              (0.04
              )
              $
              (0.05
              )Weighted
                  average number of shares outstanding
              
              
              70,766,053
              
              
              54,909,141
 
 ***See
          notes to consolidated financial statements***
  2
 **PURE
                  VANILLA EXCHANGE, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT**
 **(Unaudited)**
 **Additional****Common
                  Stock**
              
              **Paid-in**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Total**Balance
                  at January 1, 2007
              
              
              70,708,542
              
              $
              70,709
              
              $
              23,400,757
              
              $
              (31,070,026
              )
              $
              (7,598,560
              )Shares
                  issued for services
              
              
              118,000
              
              
              118
              
              
              282,982
              
              
              -
              
              
              283,100Stock
                  options granted understock
                  option plans
              
              
              -
              
              
              -
              
              
              580,527
              
              
              -
              
              
              580,527Warrants
                  issued with loans
              
              
              -
              
              
              -
              
              
              380,902
              
              
              -
              
              
              380,902Charge
                  for beneficial conversion feature
              
              
              -
              
              
              -
              
              
              348,172
              
              
              -
              
              
              348,172Net
                  loss
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,886,409
              )
              
              (2,886,409
              )Balance
                  at March 31, 2007
              
              
              70,826,542
              
              $
              70,827
              
              $
              24,993,340
              
              $
              (33,956,436
              )
              $
              (8,892,269
              )
  ***See
        notesto consolidated financial
        statements***
  3
 
 **PURE
                  VANILLA EXCHANGE, INC. AND SUBSIDIARY****CONSOLIDATED
                  STATEMENTS OF CASH FLOWS****(Unaudited)**
  **For
                  the Three Months Ended March 31,****2007**
              
              **2006****Cash
                  flows from operating activities**Net
                  loss
              
              $
              (2,886,409
              )
              $
              (2,630,229
              )Adjustments
                  to reconcile net loss to net cash used inoperating
                  activities:Depreciation
                  and amortization
              
              
              1,014,843
              
              
              285,085Issuance
                  of stock options for services
              
              
              580,527
              
              
              1,250,982Issuance
                  of shares for services
              
              
              283,100
              
              
              -Charge
                  for beneficial conversion feature
              
              
              348,172
              
              
              -Change
                  in fair value of warrant liability
              
              
              (1,401,440
              )
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              6,328
              
              
              (187,080
              )Prepaid
                  expenses and other current assets
              
              
              396,559
              
              
              75,464Other
                  assets
              
              
              1,323
              
              
              (2,498
              )Accounts
                  payable
              
              
              10,978
              
              
              254,000Other
                  current liabilities and accrued interest payable
              
              
              (153,021
              )
              
              139,326Net
                  cash used in operating activities
              
              
              (1,799,040
              )
              
              (814,950
              )**Cash
                  flows from investing activities**Purchase
                  of property and equipment
              
              
              (5,941
              )
              
              (4,687
              )Cash
                  used in investing activities
              
              
              (5,941
              )
              
              (4,687
              )**Cash
                  flows from financing activities**Cash
                  received for common stock
              
              
              -
              
              
              329,746Proceeds
                  from loans payable
              
              
              1,289,667
              
              
              366,000Cash
                  provided by financing activities
              
              
              1,289,667
              
              
              695,746**Net
                  decrease in cash**
              
              
              (515,314
              )
              
              (123,891
              )**Cash
                  at beginning of period**
              
              
              869,232
              
              
              156,579**Cash
                  at end of period**
              
              $
              353,918
              
              $
              32,688**Supplemental
                  Disclosures**Income
                  taxes paid
              
              $
              2,560
              
              $
              -Interest
                  paid
              
              $
              3,403
              
              $
              2,637**Non-cash
                  financing activities**Warrants
                  issued with short-term loans
              
              $
              380,902
              
              $
              -
 
 ***See
          notes to consolidated financial statements***
  4
 
 **Pure
              Vanilla eXchange, Inc. and Subsidiary**
  **Notes
              to Consolidated Financial Statements (Unaudited)**
 **March
              31, 2007**


**NOTE
      1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION**




Pure
      Vanilla eXchange, Inc. (the “Company”) is engaged in the electronic payments
      services business. The Company provides card programs and electronic payment
      services that enable consumers to pay anonymously for the products and services
      they buy via the Internet and to pay taxes and other fees to government
      agencies.




The
      accompanying consolidated financial statements and related footnotes should
      be
      read in conjunction with the consolidated financial statements and related
      footnotes contained in the Company’s Annual Report on Form 10-KSB for the year
      ended December 31, 2006 filed with the U.S. Securities and Exchange Commission
      on April 17, 2007.




The
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiary. All significant intercompany accounts and transactions
      have been eliminated in consolidation.




The
      consolidated financial statements have been prepared in accordance with the
      rules and regulations of the U.S. Securities and Exchange Commission related
      to
      interim statements. The financial information contained herein is unaudited;
      however, 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
      three months ended March 31, 2007 and 2006 are not necessarily indicative of
      the
      results to be expected for the full year. The balance sheet presented as of
      December 31, 2006 is derived from audited financial statements.




**Accounting
      Estimates**




The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities at the date of the consolidated financial statements and the
      reported amounts of revenue and expenses during the reporting period. Actual
      results could differ from those estimates. Significant estimates include the
      valuation of shares and stock options issued for services and the valuation
      of
      warrants issued in connection with loans.




**Net
      Loss per Share**




Loss
      per
      share (“EPS”) is computed based on the weighted average number of common shares
      outstanding and excludes any potential dilution. Diluted EPS reflects the
      potential dilution that could occur if stock options or warrants and convertible
      notes, to issue common stock, were exercised into common stock, which would
      then
      share in the earnings of the Company.




5


**Pure
          Vanilla eXchange, Inc. and Subsidiary**
  **Notes
          to Consolidated Financial Statements (Unaudited)**
 **March
          31, 2007**


In
      computing basic and diluted net loss per share for the periods ended March
      31,
      2007 and 2006, the Company used a weighted average number of common shares
      outstanding of 70,766,053 and 54,909,141, respectively.




The
      shares that would be issued upon the exercise of stock options, warrants or
      convertible notes, totaling 33,067,945 and 17,094,667 for 2007 and 2006
      respectively, are excluded from the calculation of net loss per share as their
      effect would be anti-dilutive.




**Recently
      Issued Accounting Standards**




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      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
      investments. 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 consolidated financial position, results of operations or cash
      flows.




In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 permits
      entities to choose to measure many financial instruments and certain other
      items
      at fair value. SFAS 159 is effective for fiscal years beginning after November
      15, 2007. The Company does not expect the adoption of SFAS 159 to have a
      material impact on its consolidated financial position, results of operations
      or
      cash flows.




In
      December 2006, the FASB issued Staff Position (FSP) EITF 00-19-2, “Accounting
      for Registration Payment Arrangements.” This FSP specifies that the contingent
      obligation to make future payments or otherwise transfer consideration under
      a
      registration payment arrangement, whether issued as a separate agreement or
      included as a provision of a financial instrument or other agreement, should
      be
      separately recognized and measured in accordance with FASB Statement No. 5,
      “Accounting for Contingencies.” The guidance is effective for fiscal years
      beginning after December 15, 2006. The Company has evaluated the new
      pronouncement and has determined that it did not have a significant impact
      on
      the determination of or reporting of its financial results.




**NOTE
      2. GOING CONCERN**




For
      the
      three months ended March 31, 2007, the Company recorded a net loss of $2,886,409
      and incurred negative cash flows from operations of $1,799,040. As of March
      31,
      2007, the Company had an accumulated deficit of $33,956,436. The Company’s
      continued existence is dependent upon several factors, including the ability
      to
      generate sales, achieve profitability from the sale of the Company’s products
      and obtaining financing. Accordingly, if the Company fails to obtain additional
      financing, it will not be able to continue as a going concern.




6


**Pure
          Vanilla eXchange, Inc. and Subsidiary**
  **Notes
          to Consolidated Financial Statements (Unaudited)**
 **March
          31, 2007**


The
      accompanying unaudited consolidated 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 consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.




**NOTE
      3. SHORT AND LONG-TERM FINANCING**




During
      the three months ended March 31, 2007, Jed Schutz, a principal shareholder
      and
      director of the Company, loaned the Company $1,110,000 and George W. Benedict,
      a
      director of the Company, and Thomas J. Fanning, a director of the Company,
      loaned the Company $90,000 and $89,667, respectively. Interest on each note
      accrues at a rate of 9.9% per year, with the principal and accrued interest
      becoming due on the earlier of (i) two business days after the date on which
      the
      Company has raised, in the aggregate from February 12, 2007, $20 million of
      net
      financing or (ii) April 5, 2008 , provided
      the Company’s obligations under the $1,500,000 senior secured convertible
      promissory note issued on December 26, 2006 have then been repaid in
      full . The
      notes provide for an interest rate of 15% in the event of a default. In
      connection with the issuance of each note, the Company issued a warrant to
      purchase that number of shares of common stock at an exercise price of $0.80
      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
      these note holders, warrants to purchase 403,125 shares of the Company’s common
      stock.




During
      the three months ended March 31, 2007 the Company entered into agreements with
      various lenders to extend the maturity date of promissory notes issued by the
      Company. The holder of a $250,000 principal amount 10% note agreed to extend
      the
      maturity of the note from December 26, 2006 to April 30, 2007. The holders
      of
      $1,721,000 in aggregate principal amount of 15% notes issued by the Company
      agreed to extend the maturity of the notes from February 2007 to May 15, 2007.
      As of May 18, 2007, $1,971,000 in principal and interest on these
      notes is past due, however, no notice of default has been received by the
      Company from the lenders. The Company issued three year warrants to purchase
      200,000 shares of the Company’s common stock at an exercise price of $0.80 per
      share to holders of $1,000,000 principal amount of these notes in consideration
      of their agreement to extend the maturity. The holder of an additional $250,000
      in principal amount note issued by the Company agreed to extend the maturity
      of
      the note from February 2007 to April 1, 2007. As of May 12, 2007, the principal
      amount of this note, and all interest accrued thereunder, has been repaid in
      full.




7


**Pure
          Vanilla eXchange, Inc. and Subsidiary**
  **Notes
          to Consolidated Financial Statements (Unaudited)**
 **March
          31, 2007**


The
      issuance of warrants with an exercise price of $0.80 related to the loans
      described above triggered an adjustment to the conversion price of the Company’s
      $1,500,000 senior secured convertible debt. At the time of this event the market
      price of the stock was $1.07. As a result of this beneficial conversion feature,
      the Company recorded $348,172 of interest expense for the three months ended
      March 31, 2007.




**NOTE
      4. INCENTIVE COMPENSATION PLAN**




The
      Company’s 2007 Incentive Compensation Plan provides for grants of stock options
      to employees of and consultants to the Company. Under the plan, the total number
      of shares of common stock that may be subject to awards granted under the plan is
      the
      higher of 15% of the number of shares of common stock outstanding on a
      fully-diluted basis or 17,500,000 shares.




The
      fair
      values of the options granted during the three months ended March 31, 2007
      were
      estimated at the grant date using the Black-Scholes option pricing model and
      recorded as expense over the respective vesting periods 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 rates used in
      the
      model range from 4.56% to 4.77%.




During
      the three months ended March 31, 2007, options to purchase 10,720,000 shares
      of
      common stock were granted and are outstanding under the plan. During the three
      months ended March 31, 2007, the Company recorded $580,527 of expense related
      to
      options granted under its plans. As of March 31, 2007, 18,739,980 options to
      purchase shares of common stock are issued and outstanding under the Company’s
      employee compensation plans.




**NOTE
      5. WARRANTS**





During
      the three months ended March 31, 2007, the Company issued warrants to purchase
      403,125 shares of common stock at an exercise price of $0.80 in connection
      with
      the financing described in Note 3. The fair value of the warrants was estimated
      to be $22,938 and recorded as loan discount, which is amortized over the life
      of
      the loan.





As
      a
      result of issuing warrants at an exercise price of $0.80 to Mr. Schutz, Mr.
      Benedict and Mr. Fanning, the 450,000 warrants issued in connection with the
      Company’s $1,500,000 senior secured convertible debt with an exercise price of
      $2.48782 were adjusted to 1,399,399 warrants with an exercise price of
      $0.80.  The fair
      value of the adjustment to the warrants was estimated to be $217,134 and
      recorded as loan discount, which is amortized over the life of the
      loan.




8


**Pure
          Vanilla eXchange, Inc. and Subsidiary**
  **Notes
          to Consolidated Financial Statements (Unaudited)**
 **March
          31, 2007**


As
      a
      result of the non-payment of a short-term loan of $250,000, during the three
      months ended March 31, 2007, the Company issued warrants to purchase 46,875
      shares of common stock. The fair value of the warrants was estimated to be
      $27,831 and recorded as interest expense for the three months ended March 31,
      2007.





During
      the three months ended March 31, 2007, the Company entered into agreements
      with
      various lenders to extend the maturity of notes issued by the Company as
      described in Note 3. The Company issued three-year warrants to purchase 200,000
      shares of common stock at an exercise price of $0.80 per share to holders of
      $1,000,000 in principal amount of these notes in consideration of their
      agreement to extend the maturity. The fair value of the warrants was estimated
      to be $113,000 and recorded as interest expense.




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 4.46% to 4.82%.




During
        three months ended March 31, 2007, amortization expense related to deferred
        loan
        costs and loan discounts was $962,497, and amortization expense related to
        deferred lease costs was $28,752.




On
      December 29, 2006, the Company incurred an obligation to an advisor in
      connection with investment banking services for warrants to purchase 892,921
      shares of the Company’s common stock at an exercise price equal to the offering
      price per share associated with a future financing as described in the agreement
      between the Company and the advisor. The advisor has the right to put the
      warrants to the Company at any time after the earlier of one year from the
      date
      of issuance or at such time as any portion of the Company is sold or its debt
      refinanced. The fair value of these warrants was estimated to be $1,580,024
      and
      was recorded in operating expenses and other current liabilities in the year
      ended December 31, 2006. On May 2, 2007, the Company issued the warrants at
      a
      strike price of $0.20 per share.





At
      March
      31, 2007, the liability associated with the 892,921 warrants was adjusted to
      reflect the fair value of the warrants. The fair value of the warrant liability
      was estimated to be $178,584 and as a result, the Company recognized in other
      income, a change in the fair value of these warrants of $1,401,440.




At
      March
      31, 2007, warrants to purchase 11,111,154 shares of common stock were
      outstanding.




**NOTE
      6. RELATED PARTY TRANSACTIONS**




During
      the three months ended March 31, 2007, Jed Schutz, a principal shareholder
      and
      director of the Company, loaned the Company $1,110,000 and George W. Benedict,
      a
      director of the Company, and Thomas J. Fanning, a director of the Company,
      loaned the Company $90,000 and $89,667, respectively. The Company issued
      warrants to purchase 403,125 shares of common stock at an exercise price of
      $0.80 per share in connection with these loans.




9


**Pure
          Vanilla eXchange, Inc. and Subsidiary**
  **Notes
          to Consolidated Financial Statements (Unaudited)**
 **March
          31, 2007**


**NOTE
      7. SUBSEQUENT EVENTS**




**Short-term
      Loans**




During
      the period from April 1, 2007 through May 15, 2007, Jed Schutz, a principal
      shareholder and director of the Company loaned the Company $608,000. The
      Company’s obligation is evidenced by a promissory note. Interest on each note
      accrues at a rate of 9.9% per year with the principal and accrued interest
      becoming due on the earlier of (i) two business days after the date on which
      the
      Company has raised and reported, in the aggregate from February 12, 2007 to
      the
      date of such report, $20 million of net financing or (ii) April 5,
      2008 ,
      provided the Company’s obligations under the $1,500,000 senior secured
      convertible promissory note issued on December 26, 2006 have then been repaid
      in
      full .
      The
      notes provide for an interest rate of 15% in the event of a default. In
      connection with the issuance of each note, the Company issued a warrant to
      purchase that number of shares of common stock at an exercise price of $0.80
      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 May 15, 2007,
      the
      Company issued warrants to purchase 190,001 shares of common stock.




**Payment
      of Warrant Exercise Price**




In
      April
      2007, the Company agreed to offset the interest payable to Mr. Schutz on his
      loans to the Company by $2,103 in payment of the aggregate exercise price
      payable upon exercise of the warrant to purchase Nimble Group, Inc. common
      stock
      exercised by Mr. Schutz in December 2006.




10


PART
          I - Financial
          Information




**Item
      2. Management’s Discussion and Analysis or Plan of
      Operation**




Certain
      statements in this Form 10-QSB and Management’s Discussion and Analysis or Plan
      of Operation (“MD&A”), other than purely historical information, including
      estimates, projections, statements relating to our business plans, objectives,
      and expected operating results, and the assumptions upon which those statements
      are based, are “forward-looking statements” within the meaning of the Private
      Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
      of 1933 and Section 21E of the Securities Exchange Act of 1934. These
      forward-looking statements generally are identified by the words “believes,”
“project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,”
“may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and
      similar expressions. Forward-looking statements are based on current
      expectations and assumptions that are subject to risks and uncertainties which
      may cause actual results to differ materially from the forward-looking
      statements. We undertake no obligation to update or revise publicly any
      forward-looking statements, whether as a result of new information, future
      events or otherwise.





**Plan
      of Operation**





We
      provide card programs and electronic payment services that enable consumers
      to
      pay anonymously for the products and services they buy via the Internet and
      to
      pay taxes and other fees to government agencies electronically, in person,
      online and over the telephone. Early adopters of our products and services
      have
      included consumers who wanted to protect their identity and credit card data
      in
      the purchase of online adult content.




We
      provide our electronic payment services through our proprietary, defined-access,
      closed-loop network of physical and virtual terminals. At the core of our
      network is our proprietary NimBillTM technology. Our NimBill technology allows
      our network to process and facilitate varied forms of electronic payment such
      as
      person-to-person, credit/debit/stored value/prepaid cards and electronic
      check/ACH.




Using
      our
      network, consumers are able to purchase goods and services by using either
      a
      stored value account (a Pure Vanilla Account) or a stored value card (a Pure
      Vanilla Card). Currently, consumers can store monetary value in Pure Vanilla
      Accounts and on Pure Vanilla Cards online. We also intend to establish a network
      of retail outlets throughout the United States at which consumers could store
      value on Pure Vanilla Cards. The use of Pure Vanilla Accounts and/or Pure
      Vanilla Cards permits consumers to purchase products and services in a safe
      and
      secure environment without compromising their identity or credit.




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.




11


PART
        I -
        Financial Information


·
            We
                charge a $4.00 loading fee to each consumer who purchases a Pure
                Vanilla
                Card or funds a Pure Vanilla Account online. We intend to pay a percentage
                of the loading fees attributable to Pure Vanilla Cards to our retail
                distributors.




·
            We
                charge online merchants a processing fee equal to a percentage of
                the
                revenue they receive from transactions that involve the use of Pure
                Vanilla Cards and Pure Vanilla Accounts. We currently do not 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.




·
            We
                may charge an account management fee to card and accountholders if
                there is no transaction activity on the relevant Pure Vanilla Card
                or in
                the relevant Pure Vanilla account where permitted by
                law.




The
      execution of our plan of operation is dependent upon several factors, including
      raising sufficient capital to allow us to implement our plans and the successful
      development of our online and stored value card services. There can be no
      assurance that we will be successful in doing so. Our continued existence is
      dependent upon several factors, including raising significant capital, the
      successful development of our online and stored value card services and our
      ability to achieve profitability from the sale of our products and 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 our operations as currently conducted and to execute our business
      plan we must raise capital on an immediate basis. 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 the necessary financing will
      impair our ability to continue to operate as a going concern and to successfully
      execute our business strategy. Even if we are successful in raising capital,
      there can be no assurance that we will have sufficient funds to successfully
      execute our business strategy to the extent that would have a positive effect
      on
      our results of operations or financial condition. Our ability to execute our
      business strategy is contingent upon our having sufficient capital as well
      as
      other factors, including our ability to increase consumer awareness and adoption
      of our products and services, our ability to sign up merchants and 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 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 and services, 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.





12




PART
      I - Financial
      Information




**Critical
      Accounting Policies**





Our
      consolidated financial statements and accompanying notes included in this Form
      10-QSB have been prepared in accordance with accounting principles generally
      accepted in the United States. The preparation of these consolidated financial
      statements requires that 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 our consolidated 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.




**Results
      of Operations**





**Three
      months ended March 31, 2007 compared to the three months ended March 31,
      2006.**




**Net
      Loss** .
      We had
      a net loss of $2,886,409 for the three months ended March 31, 2007 compared
      to a
      net loss of $2,630,229 for the three months ended March 31, 2006. This increased
      loss of $256,180 or 10% was due to increases of $1,412,657 in operating expenses
      and $1,262,611 in interest expense, which were partially offset by a reduction
      of $1,017,647 in organizational costs and a reduction in the fair value of
      warrant liability of $1,401,440 and an increase of $56,781 of sales. Interest
      expense increased in 2007 compared to 2006 as a result of increased borrowings
      and the amortization of deferred costs for warrants issued in connection with
      the borrowings. We incurred organizational costs in 2006 as a result of the
      reverse merger through which we acquired Old Pure Vanilla on March 13, 2006,
      as
      described in our Annual Report on Form 10-KSB for the year ended December 31,
      2006.





**Sales.** Sales
      for the three months ended March 31, 2007 were $67,584 as compared to $10,803
      for the three months ended March 31, 2006. The increase in sales is due to
      the
      continued growth in the government payment processing business and the roll
      out
      of our Pure Vanilla Card and Account services.




**Operating
      Expenses** .
      Operating expenses were $2,706,024 for the three months ended March 31, 2007
      compared to $1,236,586 for the three months ended March 31, 2006. Operating
      expenses consist of expenses of our corporate office, including stock
      compensation expense (non-cash payments), investment banking consulting fees,
      salaries and wages, marketing and advertising expense, software development
      costs, legal and accounting fees, consulting fees and other expenses.




Included
      in operating expenses for the three months ended March 31, 2007 are $580,527
      of
      stock compensation expense (non-cash payments), $5,000 for investment banking
      fees, $553,829 of salaries and wages, $343,261 of marketing and advertising
      expense, $204,475 of software development costs, $416,901 of legal and
      accounting fees, and $262,109 of consultants expense. Other items included
      in
      operating expenses are $43,459 of insurance costs, $48,809 of travel and
      entertainment expenses, occupancy expenses such as rent, telephone and general
      supplies of $115,059, hosting costs of $21,584 and other expenses of
      $111,011.




13




**PART
      I - Financial Information**




Included
      in operating expenses for the three months ended March 31, 2006 are $203,948
      of
      software development costs, $234,959 of salaries and wages, $54,476 of legal
      and
      accounting fees, $59,237 of consulting fees, $442,585 of stock compensation
      expense (non-cash payments), and $108,270 of marketing and advertising
      expense. Other items included in operating expenses are $23,782 of insurance
      costs, $11,011 of travel and entertainment expenses, occupancy expenses such
      as
      rent, telephone and general supplies of $33,481, hosting costs of $19,693 and
      other expenses of $45,144.




Stock
      compensation expense increased in 2007 compared to 2006 primarily due to the
      increased issuance of stock options to our personnel. Our other operating
      expenses increased in 2007 as a result of our transition from a development
      stage to an operating company.




**Organizational
      Costs** .
      In
      connection with the reverse merger through which we acquired Nimble in March
      2006, we paid $225,000 to the former Chief Executive Officer and largest
      shareholder of NVS Entertainment, Inc. to repurchase 39,927,452 shares of our
      common stock which were then cancelled at the closing of the reverse merger.
      Also included in organizational costs are non-cash expenses of $792,647 related
      to the issuance of shares of common stock for services provided in connection
      with the reverse merger.




**Interest
      Expense** .
      Interest expense was $1,649,409 for the three months ended March 31, 2007
      compared to $386,799 for the three months ended March 31, 2006. Interest expense
      for the three months ended March 31, 2007 consisted of $247,297 of costs for
      warrants issued in connection with loans, $646,407 of interest on shareholder
      loans, and other financing costs of $755,705. Interest expense for the three
      months ended March 31, 2006 consisted of $267,238 of costs for warrants issued
      in connection with loans and $119,561 of interest on shareholder loans. The
      cost
      of the warrants issued in connection with loans pertains to the fair value
      of
      the warrants granted at the grant date using the Black-Scholes option pricing
      model and recorded as expense over the respective life of the debt or
      guarantee.




**Off-Balance
      Sheet Arrangements** .
      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.




**Liquidity
      and Capital Resources**




As
      of
      March 31, 2007 we had cash of $353,918. As of May 14, 2007 we had cash of
      $86,178.




Net
      cash
      used during the three months ended March 31, 2007 consisted of net cash used
      in
      operating activities of $1,799,040 and the purchase of property and equipment
      of
      $5,941 (investing activities).




14




**PART
      I - Financial Information**




Cash
      provided by financing activities during the three months ended March 31, 2007
      was $1,289,667 and was the result of proceeds from loans payable.




Throughout
      the three months ended March 31, 2007 we financed our operations principally
      through the sale of our securities. Below is a summary of our recent
      financings.




**2007
      Bridge Loans**




During
      the period from February 14, 2007 to March 30, 2007, Jed Schutz, our principal
      shareholder and a member of our board of directors, loaned us $1,110,000, and
      George W. Benedict and Thomas J. Fanning, members of our board of directors,
      loaned us approximately $90,000 each. As of March 30, 2007, we issued these
      lenders promissory notes relating to these obligations. The notes bear interest
      at a rate of 9.9% per annum and are due on the earlier of April 5, 2008 or
      two
      business days after we raise $20.0 million, provided our obligations to our
      bridge lender have then been repaid in full. In connection with the notes,
      we
      issued the lenders warrants to purchase 403,125 shares of common stock at $0.80
      per share. The warrants expire on March 31, 2012. As of March 31, 2007, there
      are $1,289,667 of loans and warrants to purchase 403,125 shares of common stock
      outstanding under these agreements.




On
      April
      13, 2007, Mr. Schutz paid in full our obligations under a promissory note that
      had become due and payable on April 1, 2007. In consideration of that payment,
      we issued Mr. Schutz a promissory note in the principal amount of $287,721,
      which is equal to the principal amount of and accrued and unpaid interest on
      the
      past due note. The note bears interest at a rate of 9.9% per annum and is due
      on
      the earlier of April 5, 2008 or two business days after we raise $20.0 million,
      provided our obligations to our bridge lender have then been repaid in full.




Our
      existing cash resources are insufficient to enable us to maintain operations
      as
      presently conducted and meet our obligations as they come due. We require
      additional funds on an immediate basis to repay our bridge loan and short-term
      loans upon their scheduled maturity, continue to meet our liquidity needs,
      maintain operations and realize our business plan. We currently anticipate
      that
      we will be able to satisfy our operating requirements and current liabilities
      solely through raising additional funds from third party investors. Management
      is aggressively seeking to raise the funds necessary to continue our business
      operations and realize our business plans. Presently, we do not have any
      commitment from any person regarding any additional capital and there can be
      no
      assurance that additional capital will be available to us on commercially
      acceptable terms or at all. If we are unable to raise funds on an immediate
      basis, we will need to further curtail expenses, reduce planned research and
      development and sales and marketing efforts, forego business opportunities
      and
      cease operations.




**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.




15




PART
      I - Financial
      Information




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 March 31, 2007 that has materially affected,
      or
      is reasonably likely to materially affect, the Company’s internal controls over
      financial reporting.




16


**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 three individual investors five-year warrants to purchase, in the aggregate,
      403,125 shares of common stock at an exercise price of $0.80 per share. The
      warrants were issued in consideration of the investors loaning to us the
      aggregate amount of $1,290,000. No commissions were paid or payable with respect
      to this transaction.




We
      issued
      to four individual investors five-year warrants to purchase, in the aggregate,
      200,000 shares of common stock at an exercise price of $0.80 per share. The
      warrants were issued in consideration of the investors agreeing to waiver and
      amendment agreements associated with 2006 bridge loans.




We
      adjusted a warrant to purchase 450,000 shares of common stock at an exercise
      price of $2.48 per share to 1,399,399 shares of common stock at an exercise
      price of $0.80. The warrants were adjusted as a result of our grant of stock
      options to our officer, directors and certain consultants in February 2007
      and
      our issuance of warrants to certain note holders pursuant to certain of the
      waiver and amendment agreements we entered into in February 2007.




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**




**None**




17


**PART
          II - Other Information**


**Item
      6 - Exhibits**




***Exhibits***


4.1
              2%
                  Promissory Note dated as of February 14, 2007 issued by Pure Vanilla
                  eXchange, Inc. to Jed Schutz. (1)4.2
              2%
                  Promissory Note dated as of February 16, 2007 issued by Pure Vanilla
                  eXchange, Inc. to Jed Schutz. (1)4.3
              2%
                  Promissory Note dated as of February 27, 2007 issued by Pure Vanilla
                  eXchange, Inc. to Jed Schutz. (2)4.4
              Form
                  of Common Stock Purchase Warrant issued by Pure Vanilla eXchange,
                  Inc. to
                  certain note holders pursuant to Waiver and Amendment Agreements.
                  (2)4.5
              Form
                  of Promissory Notes issued by Pure Vanilla eXchange, Inc. pursuant
                  to Loan
                  Agreements dated March 30, 2007. (3)4.6
              Form
                  of Five Year Common Stock Purchase Warrant issued by Pure Vanilla
                  eXchange, Inc. pursuant to Loan Agreements dated March 30, 2007.
                  (3)
 
 10.9
              Loan
                  Agreement dated February 28, 2007 by and between Pure Vanilla eXchange,
                  Inc. and Jed Schutz. (2)
  10.10
              Form
                  of Waiver and Amendment Agreement by and between Pure Vanilla eXchange,
                  Inc. and Note Holders. (2)10.11
              Form
                  of Waiver and Amendment Agreement by and between Pure Vanilla eXchange,
                  Inc. and Note Holders. (2)10.12
              Waiver
                  and Amendment Agreement dated as of February 23, 2007 by and between
                  Nimble Group, Inc. and Jed Schutz. (2)10.13
              Loan
                  Agreement dated March 30, 2007 by and between Pure Vanilla eXchange,
                  Inc.
                  and Jed Schutz. (3)10.14
              Loan
                  Agreement dated March 30, 2007 by and between Pure Vanilla eXchange,
                  Inc.
                  and Thomas J. Fanning, Sr. (3)10.15
              Loan
                  Agreement dated March 30, 2007 by and between Pure Vanilla eXchange,
                  Inc.
                  and George Benedict. (3)31.1
              Certification
                  of Principal Executive Officer Pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 200231.2
              Certification
                  of Principal Financial and Accounting Officer Pursuant to section
                  302 of
                  the Sarbanes-Oxley Act of 200232.1
              Certificate
                  Pursuant To 10 U.S.C. Section 1350, Section 906 of the Sarbanes-Oxley
                  Act
                  of 2002.


(1)
              Filed
                  as an exhibit to the Current Report on Form 8-K filed on February
                  23, 2007
                  and incorporated herein by
                  reference.
 
 (2)
              Filed
                  as an exhibit to the Current Report on Form 8-K filed on March
                  5, 2007 and
                  incorporated herein by reference.
 
 (3)
              Filed
                  as an exhibit to the Current Report on Form 8-K filed on April
                  6, 2007 and
                  incorporated herein by
                  reference.




18




**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:
      May
      21, 2007


**PURE
                VANILLA EXCHANGE, INC.**By:
            /s/
              Steven YevoliSteven
                Yevoli, CEO and Chairman
              (Principal
                Executive Officer)





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




19