SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
     OF 1934

                  For the quarterly period ended June 30, 2006

                                       OR

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT
     OF 1934

        FOR THE TRANSITION PERIOD FROM ______________ TO _______________

                         Commission File Number: 0-29459

                                   PACEL CORP.
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)


           NEVADA                                          54-1712558
----------------------------------              --------------------------------
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                       Identification Number)


      7621 Little Ave  Suite 101
      Charlotte, NORTH CAROLINA                               28226
----------------------------------------        --------------------------------
(Address of principal executive offices)                    (ZIP Code)

       Registrant's telephone number, including area code: (704) 643-0676

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

Yes [X] No [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act of 1934)

Yes [ ] No [X]

TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)

Yes [ ] No [X]

State the number of Shares outstanding of each of the issuer's classes of common
equity, as of the latest date:

As of August 15, 2006 there were 1,348,984,946 shares of the Registrant's common
stock outstanding.

<PAGE>
                          PACEL CORP. AND SUBSIDIARIES


Part I.  FINANCIAL INFORMATION (unaudited)
Item 1.  Index to Consolidated Financial Statements
              Consolidated Balance Sheets                               F - 2-3
              Consolidated Statements of Operations                     F - 4
              Consolidated Statements of Cash Flows                     F - 5-6
              Notes to Consolidated Financial Statements                F - 7-11

Item 2.  Management's Discussion and Analysis of Financial
         Results of Operations                                              3-8
Item 3.  Controls and Procedures                                            9

Part II. OTHER INFORMATION

Item 3.  Defaults upon Senior Securities                                    9

Item 6.  Exhibits                                                           9-11









































<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                June 30,          December 31,
                                                                  2006               2005
                                                            ---------------     ---------------
                                                              (Unaudited)          (Audited)
<S>                                                         <C>                 <C>
                                     ASSETS
Current assets:
       Cash                                                  $     251,243       $     251,595
       Accounts receivable                                         276,968              15,384
       Accounts receivable-Unbilled                                170,174             169,749
       Prepaid expenses                                             84,665              69,372
       Workers compensation insurance deposits                      80,614              26,240
       Restricted cash                                             182,568             179,855
                                                            ---------------     ---------------

                Total current assets                             1,046,232             712,195
                                                            ---------------     ---------------

Property and equipment, net of accumulated depreciation of
       $163,197 and $133,031, respectively                         108,971             125,380
                                                            ---------------     ---------------

Other assets:
       Other receivables                                            26,285              65,127
       Retirement Plan - Director                                  185,954             162,230
       Goodwill                                                    652,872             368,200
       Security deposits                                            11,152              11,152
                                                            ---------------     ---------------

                Total other assets                                 876,263             606,709
                                                            ---------------     ---------------

                Total assets                                 $   2,031,466       $   1,444,284
                                                            ===============     ===============
</TABLE>


















        See accompanying notes to the consolidated financial statements.
                                       F-2
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                               June 30,           December 31,
                                                                 2006                2005
                                                            ---------------     ---------------
                                                              (Unaudited)          (Audited)
<S>                                                         <C>                 <C>
                      LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
       Accounts payable                                      $     144,600       $     336,497
       Payroll and payroll related liabilities                   2,236,292           1,955,231
       Accrued worksite employee payroll expense                   163,869             163,626
       Accrued expenses                                          2,017,914           1,857,454
       Assumed Liabilities                                         493,133             493,133
       Short term payables                                         719,414           1,081,359
       Current Maturities of long term note                         27,127              27,127
                                                            ---------------     ---------------

                Total current liabilities                        5,802,349           5,914,427
                                                            ---------------     ---------------

Long-term liabilities:
       Notes Payable - Non Current portion                         207,275             218,926
       Deferred Compensation - Director Payable                    408,567             335,233
                                                            ---------------     ---------------

       Total long term liabilities                                 615,842             554,159
                                                            ---------------     ---------------

       Total liabilities                                         6,418,191           6,468,586
                                                            ---------------     ---------------

Stockholders' equity (deficit):
       Preferred stock, .001 par value, no liquidation value,
                5,000,000 shares authorized, 1,000,000 shares
                of 1997 Class A convertible preferred stock issued   1,000               1,000
       Preferred stock, .001 par value, no liquidation value,
                500,000 shares authorized, 500,000 shares
                of 2006 Class C convertible preferred stock issued     500                 -0-
       Common stock, .001 par value, 10,000,000,000 shares
                authorized, 14,884,914 and 4,430
                shares issued respectively                          14,884                   4
       Additional paid-in capital                               27,909,007          25,765,420
       Cumulative currency translation adjustment                  (18,720)            (18,720)
       Accumulated deficit                                     (32,293,396)        (30,772,006)
                                                            ---------------     ---------------

                Total stockholders' (deficit)                   (4,386,725)         (5,024,302)
                                                            ---------------     ---------------

                Total liabilities and stockholders' deficit  $   2,031,466       $   1,444,284
                                                            ===============     ===============
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-3
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Operations
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     Six months ended                     Three months ended
                                                                         June 30,                              June 30,
                                                                 2006              2005                2006              2005
                                                            ---------------   ---------------     ---------------   ---------------
<S>                                                         <C>               <C>                 <C>               <C>
Revenue                                                      $   1,988,281     $  1, 490,511       $   1,564,163     $     663,894
Cost of services                                                 1,509,604         1,177,739           1,194,382           537,597
                                                            ---------------   ---------------     ---------------   ---------------
       Gross profit                                                478,677           312,772             369,781           126,297

Operating costs and expenses:
       General and administrative                                1,177,938         1,500,434             644,606           686,887
       Sales and marketing                                          15,828           350,138               8,542           116,615
       Depreciation and amortization                                30,165            29,920              16,003            15,476
       Impairment of goodwill                                      197,720           131,950             158,176               -0-
                                                            ---------------   ---------------     ---------------   ---------------
             Total operating expenses                            1,421,651         2,012,442             827,327           818,978
                                                            ---------------   ---------------     ---------------   ---------------

       Operating Loss                                             (942,974)       (1,699,670)           (457,546)         (692,681)

Other expenses:
       Interest expense                                           (170,920)         (232,708)           (106,187)         (130,908)
       Financing costs                                            (409,508)         (362,143)            (85,714)         (101,643)
                                                            ---------------   ---------------     ---------------   ---------------
             Total other expense                                  (580,428)         (594,851)           (191,901)         (232,551)

Net loss before discontinued operations                         (1,523,402)       (2,294,521)           (649,447)         (925,232)

Discontinued operations:
       Loss from discontinued operations of Asmara of
         Florida and Partners PEO of the Carolinas                      -0-         (134,708)                 -0-         (112,875)
       Loss from sale of assets to Allegro, Inc.                        -0-         (485,953)                 -0-          (18,213)
                                                            ---------------   ---------------     ---------------   ---------------
             Total loss on discontinued operations                      -0-         (620,661)                 -0-         (131,088)

Net loss                                                     $  (1,523,402)    $  (2,915,182)      $    (649,447)    $  (1,056,320)
                                                            ===============   ===============     ===============   ===============

Loss from discontinued operations per common and common equivalent share:
       Basic                                                 $          -0-    $    (134,708)      $          -0-    $    (112,875)
       Diluted                                               $          -0-    $    (134,708)      $          -0-    $    (112.875)

Loss from sale of assets per common and common equivalent share:
       Basic                                                 $          -0-    $    (485,953)      $          -0-    $     (18,213)
       Diluted                                               $          -0-    $    (485,953)      $          -0-    $     (18,213)

Net loss per common and common equivalent share:
       Basic                                                 $       (0.21)    $  (2,915,182)      $        (0.06)   $  (1,056,230)
       Diluted                                               $       (0.21)    $  (2,915,182)      $        (0.06)   $  (1,056,230)

Weighted average shares outstanding:
       Basic                                                     7,325,561                 1           10,329,529                1
       Diluted                                                   7,325,561                 1           10,329,529                1
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-4
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     Six months ended
                                                                          June 30,
                                                                 2006                2005
                                                            ---------------     ---------------
<S>                                                          <C>                 <C>
Cash flows from operating activities:
       Net loss                                              $  (1,523,402)      $  (2,915,182)
Adjustments to reconcile net loss to net cash
         provided by (used in) operating activities:
           Depreciation                                             30,165              29,920
           Embedded interest                                       409,508             362,143
           Other Non Cash Items                                        -0-              27,700
           Loss on discontinued operations                             -0-             134,708
           Loss on Sale of assets                                      -0-             485,954
           Impairment of goodwill                                  197,720             131,950
           Changes in operating assets and liabilities:
           (Increase) decrease in assets:
                 Accounts receivable                              (146,853)            212,597
                 Accounts receivable-Unbilled                         (425)            (82,345)
                 Other receivables                                  38,842                 -0-
                 Client deposits                                       -0-             760,469
                 Insurance deposits                                (19,173)             46,263
                 Prepaid expenses                                  (15,293)             50,400
                 Security deposits                                     -0-              (1,926)
                 Retirement Plan - Director                        (23,724)            (16,336)
           Increase (decrease) in liabilities:
                 Accounts payable                                 (190,323)            349,805
                 Accrued expenses                                  157,931             417,522
                 Payroll and payroll related liabilities            78,092            (409,932)
                 Deferred revenue                                      -0-            (760,469)
                 Accrued work site employee payroll cost               243              76,038
                 Client Deposits and advance payments                  -0-              30,353
                 Deferred Compensation Director                     73,334             (16,366)
                 Sales and income taxes payable                        -0-                 676
                                                            ---------------     ---------------
                    Net cash (used in) operating activities       (933,358)         (1,086,058)

Cash flows from investing activities:
       Purchases of property and equipment                          (3,756)            (10,630)
       Cash received from sale of assets                               -0-              18,022
       Cash CD-Restricted                                           (2,713)            684,895
       Cash acquired in United Personnel Acquisition                63,174                 -0-
                                                            ---------------     ---------------
           Net cash (provided by) investing activities              56,705             692,287
Cash flows from financing activities:
           Repayments of notes payable                             (11,651)            (12,685)
           Issuance of convertible notes payable                   902,100             845,000
           Repayments of lines of credit                           (14,148)             (5,210)
                                                            ---------------     ---------------

Net cash provided by financing activities                          876,301             827,105
                                                            ---------------     ---------------

Net increase (decrease) in cash and cash equivalents                  (352)            433,334

Cash and cash equivalents, beginning of period                     251,595             117,052
                                                            ---------------     ---------------

Cash and cash equivalents, end of period                     $     251,243       $     550,386
                                                            ===============     ===============
</TABLE>

        See accompanying notes to the consolidated financial statements.
                                       F-5
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                     Six months ended
                                                                          June 30,
                                                                 2006                2005
                                                            ---------------     ---------------
<S>                                                          <C>                 <C>
Supplemental disclosure of cash flow information:
     Cash paid during the years for:
       Interest                                              $      11,592       $       6,629
       Income taxes                                          $         -0-       $         -0-
</TABLE>








































        See accompanying notes to the consolidated financial statements.
                                       F-6
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES
                 Notes to the Consolidated Financial Statements
                                  June 30, 2006

Note 1.  Basis of Presentation.

     The unaudited  financial  statements of Pacel  Corporation and Subsidiaries
     (collectively,  the Company) included in the Form 10-QSB have been prepared
     in accordance  with generally  accepted  accounting  principles for interim
     financial  information  and with the  instructions  to Form 10-QSB and Item
     310(b) of Regulation  SB of the  Securities  and Exchange Act of 1934.  The
     financial information  furnished herein reflects all adjustments,  which in
     the opinion of  management,  are necessary for a fair  presentation  of the
     Company's financial position,  the results of operations and cash flows for
     the periods presented.

     Certain  information  and  footnote   disclosures   normally  contained  in
     financial   statements  prepared  in  accordance  with  generally  accepted
     accounting  principles  have  been  omitted,  pursuant  to such  rules  and
     regulations.

     These interim  statements  should be read in  conjunction  with the audited
     consolidated financial statements and related notes thereto as presented in
     the Company's  certified  financial  statements for the year ended December
     31,  2005.  The  Company  presumes  that  users  of the  interim  financial
     information  herein  have  read or have  access to such  audited  financial
     statements and that the adequacy of additional disclosure needed for a fair
     presentation  may be determined in that context.  The results of operations
     for any  interim  period  are not  necessarily  indicative  of the  results
     expected or reported for the full year.

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates the realization of assets and the satisfaction of
     liabilities  in the normal  course of business.  The Company has  generated
     significant  losses and is unable to predict  profitability for the future.
     These factors indicate that the Company's continuation,  as a going concern
     is dependent  upon its ability to obtain  adequate  financing.  The Company
     plans to address the going  concern by obtaining  equity  financing  and to
     grow the  Company  with  profitable  sales  both  organically  and  through
     acquisitions.  Management believes successfully  executing these tasks will
     lead  to  the  removal  of the  going  concern  comment  from  our  audited
     financials.

Note 2.  Principles of consolidation.

     The consolidated  financial  statements include the accounts of the Company
     and all of its subsidiaries in which a controlling  interest is maintained.
     All  significant   inter-company   accounts  and  transactions   have  been
     eliminated in consolidation.

Note 3.  Use of Estimates.

     Our consolidated financial statements have been prepared in accordance with
     generally  accepted  accounting  principles in the United States (US GAAP).
     The preparation of these financial statements requires us to make estimates
     and judgments that affect the reported amounts in the financial  statements
     and  accompanying  notes.  These  estimates form the basis for judgments we
     make  about the  carrying  values of assets  and  liabilities  that are not
     readily apparent from other sources. We base our estimates and judgments on
     historical  experience and on various other assumptions that we believe are
     reasonable under the circumstances.  However,  future events are subject to
     change and the best estimates and judgments  routinely require  adjustment.
     US GAAP  requires us to make  estimates  and  judgments  in several  areas,
     including  those related to impairment of goodwill and equity  investments,
     revenue  recognition,  recoverability  of inventory  and  receivables,  the
     useful  lives of long lived  assets such as  property  and  equipment,  the
     future  realization  of deferred  income tax benefits and the  recording of
     various accruals. The ultimate outcome and actual results could differ from
     the estimates and assumptions used.

                                       F-7
<PAGE>

Note 4.  Revenue Recognition.

     We account for our revenues in accordance  with Emerging  Issues Task Force
     ("EITF") 99-19,  Reporting  Revenues Gross as a Principal  Versus Net as an
     Agent. Our revenues are derived from our billings, which are based on:
     o    the payroll cost of our worksite employees; and
     o    a markup computed as a percentage of the payroll cost.

     In  determining  the pricing of the markup  component of the  billings,  we
     consider our estimates of the costs directly  associated  with our worksite
     employees, including payroll taxes and workers' compensation costs, plus an
     acceptable gross profit margin.  We invoice the billings  concurrently with
     each periodic payroll of our worksite  employees.  Revenues,  which exclude
     the payroll cost  component of billings,  are  recognized  ratably over the
     payroll  period as worksite  employees  perform their service at the client
     worksite. We include revenues that have been recognized but not invoiced in
     unbilled accounts receivable on our Consolidated Balance Sheets.

     Our revenues are primarily dependent on the number of clients enrolled, the
     resulting number of worksite employees paid each period. Because our markup
     is computed as a percentage of payroll cost,  revenues are also affected by
     the payroll cost of worksite  employees,  which can fluctuate  based on the
     composition  of the worksite  employee base,  inflationary  effects on wage
     levels and differences in the local economies of our markets.

     The primary direct costs associated with our revenue generating  activities
     are:
     o    employment-related taxes ("payroll taxes");
     o    workers' compensation claim costs.

     Payroll  taxes  consist of the  employer's  portion of Social  Security and
     Medicare   taxes  under  FICA,   federal   unemployment   taxes  and  state
     unemployment  taxes.  Payroll taxes are  generally  paid as a percentage of
     payroll  cost.  The federal  tax rates are defined by federal  regulations.
     State  unemployment  tax rates are subject to claim histories and vary from
     state to state.

     Due  to the  significance  of  the  amounts  included  in  billings  to the
     Company's clients and its corresponding  revenue recognition  methods,  the
     Company has provided the  following  reconciliation  of billings to revenue
     for the quarters ended June 30, 2006 and June 30, 2005.

<TABLE>
<CAPTION>
                                                                          Three Months Ended     Three Months Ended
                                                                               June 30,               June 30,
                                                                                 2006                   2005
                                                                         --------------------   --------------------
<S>                                                                       <C>                    <C>
               Reconciliation of billings to revenue recognized:

                Billings to clients                                       $        7,898,575     $        4,820,211
                Less - Gross wages billed to clients                              (6,334,412)            (4,156,317)
                                                                         --------------------   --------------------

                Revenue from PEO services                                 $        1,564,163     $          663,894
                                                                         --------------------   --------------------

                Total revenue as reported                                 $        1,564,163     $          663,894
                                                                         ====================   ====================

                Employer portion of Social Security
                And Medicare taxes                                        $          439,230     $          304,554
                State and Federal Unemployment taxes                                 111,956                 81,476
                Workers' Compensation Premiums                                       539,491                129,146
                Other Misc.  Expense                                                 103,705                 22,421
                                                                         --------------------   --------------------

                Total Cost of Sales                                                1,194,382                537,597
                                                                         --------------------   --------------------

                Gross Profit                                              $          369,781     $          126,297
                                                                         ====================   ====================
</TABLE>
                                       F-8
<PAGE>
     Due  to the  significance  of  the  amounts  included  in  billings  to the
     Company's clients and its corresponding  revenue recognition  methods,  the
     Company has provided the  following  reconciliation  of billings to revenue
     for the six months ended June 30, 2006 and June 30, 2005.

<TABLE>
<CAPTION>
                                                                           Six Months Ended       Six Months Ended
                                                                               June 30,               June 30,
                                                                                 2006                   2005
                                                                         --------------------   --------------------
<S>                                                                      <C>                    <C>
               Reconciliation of billings to revenue recognized:

                Billings to clients                                       $       10,494,207     $       11,168,887
                Less - Gross wages billed to clients                              (8,505,926)            (9,678,376)
                                                                         --------------------   --------------------

                Revenue from PEO services                                 $        1,988,281     $        1,490,511
                                                                         --------------------   --------------------

                Total revenue as reported                                 $        1,988,281     $       1,490,511
                                                                         ====================   ====================

                Employer portion of Social Security
                And Medicare taxes                                        $          594,123     $          651,019
                State and Federal Unemployment taxes                                 161,916                219,347
                Workers' Compensation Premiums                                       645,962                274,523
                Other Misc.  Expense                                                 107,603                 32,850
                                                                         --------------------   --------------------

                Total Cost of Sales                                                1,509,604              1,177,739
                                                                         --------------------   --------------------

                Gross Profit                                              $          478,677     $          312,772
                                                                         ====================   ====================
</TABLE>

Note 5.  Common Stock.

     In January and June 2006, the Company affected one-for-one thousand reverse
     stock  splits  restating  the  number of common  shares of the  Company  at
     December 31, 2005 to 4,430.  All  references  to average  number of shares,
     shares outstanding and earnings per share have been restated  retroactively
     to reflect the split.

Note 6.  Acquisitions.

     In March 2006,  the Company  completed the purchase of all the  outstanding
     shares of stock of World Wide Personnel of Maine,  Inc and United Personnel
     Services,  Inc. The  effective  date of the purchases was April 1, 2006 and
     January 1, 2006  respectively.  The Company issued 500,000 shares of Series
     "C"  Convertible  Preferred  shares  to the  sole  stockholder  for  United
     Personnel  Services,  Inc. and World Wide Personnel Services of Maine, Inc.
     The Preferred  shares can be converted  into  $500,000 of Common Stock,  of
     which  $100,000 has been  attributed  to the  purchase of United  Personnel
     Services,  Inc and the  remaining  $400,000  is  attributed  to World  Wide
     Personnel of Maine, Inc. Total Assets acquired in the Acquisition of United
     Personnel  Services and World Wide  Personnel of Maine were $223,106  which
     included  $63,174 in cash and $10,000 in fixed  assets  which  consisted of
     Office/Computer  Equipment.  Total  Liabilities  assumed in the Acquisition
     were  $205,498.  Goodwill  was valued at  $482,392  of which  $197,720  was
     impaired. The fair value was determined using discounted cash flows.

     Both companies are licensed Professional Employer  Organizations  operating
     in the state of Maine.  United  Personnel was formed in 1999 and World Wide
     Personnel  of Maine,  Inc was  formed in 1997.  Both  companies  offer full
     service  human  resource   management  services  for  small  and  mid-sized
     businesses.  Combined these  acquisitions  increase the Company's work site
     employees by approximately 600. The purchase of these companies extends the
     operating  footprint  of the Company  from the  mid-Atlantic  region to the
     northeast region of the country.

     The following  unaudited  condensed pro forma financial  information  gives
     effect to the Company's  operations as if the United/World Wide acquisition
     had occurred on January 1, 2005. Unaudited pro forma financial  information
     is not  necessarily  indicative  of the results that the Company would have
     achieved had the acquisition occurred on either of those dates.

                                       F-9
<PAGE>
          Pacel Corp and Subsidiaries with World Wide/United Personnel

<TABLE>
<CAPTION>
                                                                           Six Months Ended       Six Months Ended
                                                                               June 30,               June 30,
                                                                                 2006                   2005
                                                                         --------------------   --------------------
<S>                                                                       <C>                    <C>
                Revenue                                                   $        2,834,145     $        3,102,088
                Cost of Services                                                  (2,246,340)            (2,539,500)
                                                                         --------------------   --------------------

                Gross Profit                                                         587,805                562,588
                                                                         --------------------   --------------------


                Total operating expenses                                           1,516,011              2,228,656

                Net Operating Loss                                                  (928,206)            (1,666,068)
                                                                         --------------------   --------------------

                Other expenses                                                      (580,428)              (594,851)

                Net loss before discontinued operations                           (1,508,634)            (2,260,919)
                                                                         --------------------   --------------------

                Discontinued operations                                                  -0-               (620,661)

                Net Loss                                                  $       (1,508,634)    $       (2,881,580)
                                                                         ====================   ====================

                 Net loss from discontinued operations per common and common
                 equivalent share:
                 Basic                                                    $              -0-     $         (620,661)
                 Diluted                                                  $              -0-     $         (620,661)


                Net loss per common and common equivalent share:
                Basic                                                     $             (.21)    $       (2,881,580)
                Diluted                                                   $             (.21)    $       (2,881,580)

                Weighted average shares outstanding:
                Basic                                                              7,325,561                      1
                Diluted                                                            7,325,561                      1
</TABLE>


Note 7.  Contingent Liabilities.

     The Securities and Exchange  Commission  ("SEC") filed an action in Federal
     District Court asserting various  violations of securities laws against the
     Company and its principal  officer.  The  complaint  alleges that Mr. Frank
     Custable  "orchestrated"  a "scheme" to illegally obtain stock from various
     companies,  including  the  Company,  through  "scam  Commission  Form  S-8
     registration statements,  forged stock authorization forms and at least one
     bogus attorney opinion letter arranged by Custable." The complaint  alleges
     that, in connection with this alleged  "scheme," the Company and its former
     CEO, David Calkins violated Section 17(a) of the Securities Act and Section
     10(b) and Rule 10b-5 of the Exchange Act. The SEC asks that the Company and
     Calkins be  permanently  enjoined  from future  violations,  ordered to pay
     disgorgement  and civil  penalties  and  Calkins be barred  from  continued
     service as an officer and director. As part of an ex parte proceeding,  the
     District  Court ordered the Company and Calkins to provide an accounting of
     their assets and the transactions that are the subject of the complaint.

     On April 7, 2005,  grand  jury  proceedings  in the  Northern  District  of
     Illinois  indicted several  individuals but not the Company.  Subsequently,
     the Court stayed the  Commission's  civil action  pending the resolution of
     the criminal proceedings arising from the actions of the grand jury.

                                      F-10
<PAGE>
     On or about  September 9, 2005,  an action was filed against the Company in
     the Supreme Court of New York, County of New York.. The action alleges that
     the  Company  is in default  in the  payment  of  amounts  owing on certain
     convertible  notes  issued by the  Company  in March  2001and  subsequently
     converted  to term  notes.  The action  seeks  compensatory  damages in the
     amount of  $312,000,  plus  interest  and  attorneys  fees in an amount yet
     unspecified.  The  Company is  carrying  these  notes as part of short term
     notes payable of $375,000.  The Company has recognized the obligation  but,
     due to limited cash flows is unable to pay the outstanding balance.

Note 8.  Short-Term Payables consists of:

                                                June 30,         December 31,
                                                  2006              2005
                                            ----------------   ----------------
         Convertible Notes Payable           $      245,876     $      600,507
         Bank Line of Credit                          8,538             15,852
         Other Notes Payable                        465,000            465,000
                                            ----------------   ----------------
         Total Short-Term Payables           $      719,414     $    1,081,359
                                            ================   ================

Note 9.  Discontinued Operations.

     On May 15, 2005, The Resourcing  Solutions Group,  Inc. a subsidiary of the
     Company discontinued the operation of Asmara of Florida and Partners PEO of
     the Carolinas. The Company reported a loss from discontinued operations for
     the six months  ended June 30,  2005  equaled  $620,661.  The  consolidated
     financial statements have been reclassified,  where applicable,  to reflect
     the discontinued operations.

Note 10. Related Party Transactions.

     A.   Mr. Calkins employment agreement

          In May 2005, David Calkins engaged the law firm of Hinshaw and Culbert
          to defend himself in an action which occurred while Mr. Calkins was an
          Officer and Director of the Company.  The employment  contract between
          Mr.  Calkins  and the Company  requires  the Company to pay such legal
          bills. The Company incurred $82,155 in fees to Hinshaw and Culbert for
          the six months ending June 30, 2006

Note 11. Recent Accounting Pronouncements.

     The Company believes that any new accounting  pronouncements since December
     31, 2005, will not have an affect on the Company's financial statements.










                                      F-11
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations.

     Management's discussion and analysis of results of operations and financial
     condition  include a discussion  of liquidity  and capital  resources.  The
     following  discussion  should be read in conjunction  with the consolidated
     financial  statements  and  notes  thereto.   Historical  results  are  not
     necessarily  indicative  of  trends in  operating  results  for any  future
     period.

     In 2006,  the Company  continued  its  strategy for  penetrating  the Human
     Resources  Outsourcing  ("HRO")  industry  based on its  evaluation  of its
     business  model and existing  business  initiatives  completed in 2002. The
     Company's  intention  to  enter  this  business  sector  was  announced  in
     September 2002 and was based on an evaluation of potential business markets
     that provide the potential for success.  The Company provides human capital
     solutions through the provision of PEO services and Administrative  Service
     Organization  ("ASO")  services  to such  clients.  In  2005,  the  Company
     successfully  completed the  acquisition of an additional PEO  organization
     and continues to evaluate other potential acquisition candidates while also
     reviewing and implementing opportunities to support organic growth in order
     to secure a position as an  industry  leader.  In March  2006,  the Company
     completed the acquisition of two additional PEO organizations.  The Company
     sees this initiative in the Human Resources Outsourcing ("HRO") industry as
     an opportunity  to tap into the small business  market in the United States
     and  intends to  compliment  the  provision  of PEO and ASO  services  with
     information technology services, business consulting services and financial
     services at a future time.

     As part of its goal to bring the company to profitability  and less reliant
     on equity  financing for ongoing  operations,  the company has developed an
     aggressive  marketing  strategy as well as an investment  to  significantly
     upgrade  its HRIS  (Human  Resource  Information  System)  capabilities  to
     service its current and prospective clients.  This plan includes hiring and
     training the sales team as well as marketing the company's services through
     networks of national  associations and chains. During the six months ending
     June 2006,  the  Company  increased  its sales  force.  New sales  began to
     matriculate in the second quarter at which time sales  commission  expenses
     increased and will continue to increase.

     Through  its PEO/ASO  business  unit,  the  Company  markets to current and
     prospective  clients,  typically  small  to  medium-sized  businesses  with
     between  five and 1,500  employees,  a broad range of products and services
     that provide an outsourced solution for the clients' human resources ("HR")
     needs.   The  Company's   products  include  payroll   services,   benefits
     administration   (including   health,   welfare  and   retirement   plans),
     governmental  compliance,  risk  management  (including  safety  training),
     unemployment  administration and other HR related services. The Company has
     established the national and regional vendor  relationships it believes are
     necessary to effectively and competitively provide such services to a broad
     range of clients.  The Company is working to establish  additional national
     and vendor  relationships to expand services and create additional  revenue
     sources.

     In a  further  effort  to  bring  the  Company  to  profitability  internal
     operating  costs  are  continually   reviewed  and  evaluated.   Management
     continues to reduce operating costs and achieve additional  efficiencies as
     new acquisitions are integrated into existing operations.


SIX MONTHS ENDED JUNE 30, 2006 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005

     Revenue for the six months ended June 30, 2006 was  $1,988,281  compared to
     that of  $1,490,511  for the six months  ended June 30,  2005.  The Cost of
     Service and Gross Profit significantly  increased over the same time period
     in 2005.  These  results are directly  attributable  to the three months of
     ownership  of World Wide  Personnel  Services  of Maine,  Inc.  and the six
     months  of  ownership  of United  Personnel  Services,  Inc which  combined
     contributed  $1,122,041 in total revenue for the six months ending June 30,
     2006.

     Due  to the  significance  of  the  amounts  included  in  billings  to the
     Company's clients and its corresponding  revenue recognition  methods,  the
     Company has provided the  following  reconciliation  of billings to revenue
     for the six months ended June 30, 2006 and June 30, 2005.

                                        3
<PAGE>
<TABLE>
<CAPTION>
                                                                           Six Months Ended       Six Months Ended
                                                                               June 30,               June 30,
                                                                                 2006                   2005
                                                                         --------------------   --------------------
<S>                                                                      <C>                    <C>
               Reconciliation of billings to revenue recognized:

                Billings to clients                                       $       10,494,207     $       10,974,772
                Less - Gross wages billed to clients                              (8,505,926)            (9,484,261)
                                                                         --------------------   --------------------

                Revenue from PEO services                                 $        1,988,281     $        1,490,511
                                                                         --------------------   --------------------

                Total revenue as reported                                 $        1,988,281     $        1,490,511
                                                                         ====================   ====================

                Employer portion of Social Security
                And Medicare taxes                                        $          594,123     $          664,491
                State and Federal Unemployment taxes                                 161,916                222,319
                Workers' Compensation Premiums                                       645,962                279,960
                Other Misc.  Expense                                                 107,603                 10,969
                                                                         --------------------   --------------------

                Total Cost of Sales                                                1,509,604              1,177,739
                                                                         --------------------   --------------------

                Gross Profit                                              $          478,677     $          312,772
                                                                         ====================   ====================
</TABLE>

     Cost of  services  for the six months  ended June 30,  2006 was  $1,509,604
     compared to cost of services of  $1,177,739  for the six months  ended June
     30, 2005 and is related directly to the delivery of services to its PEO/ASO
     clients.  The increase over 2005 is directly  related to the acquisition of
     United Personnel  Services and World Wide Personnel  Services of Maine. For
     the six months in which  United  Personnel  Services was owned by Pacel and
     the three  months that Pacel owned World Wide  Personnel  Services of Maine
     combined  they  incurred  $1,003,869 in cost of services for the six months
     ended June 30, 2006.

     General &  administrative  expenses,  including  salaries  and  wages,  was
     $1,177,938  for the six months ended June 30, 2006,  compared to $1,500,434
     in the  corresponding  period of 2005.  The decrease was  attributed to the
     restructuring  that occurred on May 15, 2005 which  included a reduction in
     internal  staff.  The  decrease  was  mitigated  by a combined  increase of
     $295,505  in  expenses  with 6 months  of  ownership  of  United  Personnel
     Services and three months of ownership of World Wide Personnel  Services of
     Maine

     Sales and  marketing  expense was $15,828 for the six months ended June 30,
     2006,  compared  to  $350,138  in the  corresponding  period  of 2005.  The
     decrease was attributed to the company's  continued  transformation  of its
     sales and marketing function that began in the second quarter of 2005. Many
     of the expenses  incurred  were  one-time  costs or contracts  for specific
     periods of time. Sales and marketing expenses decreased as these costs have
     been met and the sales and marketing  function shifts to a commission based
     system.

     Depreciation and amortization  expense was $30,165 for the six months ended
     June 30, 2006,  compared to $29,920 for the  corresponding  period of 2005.
     This increase was from the Human  Resource  Information  System and various
     other office  equipment placed in service in the third and forth quarter of
     2004

     Interest  expense is interest  paid and accrued on the  Convertible  Notes,
     unpaid payroll taxes, notes payable,  and bank financing.  Interest expense
     was $170,920  for the six months  ended June 30, 2006  compared to $232,708
     for the same period of 2005.

     Embedded  Interests  for the six months  ended June 30,  2006 was  $409,508
     compared to $362,143 for the six months ended June 30, 2005.  The increased
     was the result of increase funding.  The Company recorded embedded interest
     in  conjunction  with the  issuance of  convertible  debentures  during the
     period.

                                        4
<PAGE>
                          PACEL CORP. AND SUBSIDIARIES

THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2005

     Revenue  for the  quarter  ended June 30,  2006 was  1,564,163  compared to
     revenue of $663,894 for the quarter ended June 30, 2005.  Gross billings to
     clients and gross wages billed to clients  significantly  increased  due to
     the acquisition of World Wide Personnel Services of Maine which contributed
     total revenue of $1,053,318. These results are directly attributable to the
     acquisition as well as the  restructuring  of clients and the Company which
     occurred on May 15, 2005.

     The company experienced an increase in the number work-site employees under
     management over the same time period in 2005. This increase is attributable
     to results from a more aggressive sales and marketing campaign resulting in
     organic growth and the acquisition of United  Personnel  Services and World
     Wide Personnel Services of Maine.

     Due  to the  significance  of  the  amounts  included  in  billings  to the
     Company's clients and its corresponding  revenue recognition  methods,  the
     Company has provided the  following  reconciliation  of billings to revenue
     for the quarters ended June 30, 2006 and June 30, 2005.

<TABLE>
<CAPTION>
                                                                            Quarter Ended          Quarter Ended
                                                                               June 30,               June 30,
                                                                                 2006                   2005
                                                                         --------------------   --------------------
<S>                                                                       <C>                    <C>
               Reconciliation of billings to revenue recognized:

                Billings to clients                                       $        7,898,575     $        4,820,211
                Less - Gross wages billed to clients                              (6,334,412)            (4,156,317)
                                                                         --------------------   --------------------

                Revenue from PEO services                                 $        1,564,163     $          663,894
                                                                         --------------------   --------------------

                Total revenue as reported                                 $        1,564,163     $          663,894
                                                                         ====================   ====================

                Employer portion of Social Security
                And Medicare taxes                                        $          439,230     $          304,554
                State and Federal Unemployment taxes                                 111,956                 81,476
                Workers' Compensation Premiums                                       539,491                129,146
                Other Misc.  Expense                                                 103,705                 22,421
                                                                         --------------------   --------------------

                Total Cost of Sales                                                1,194,382                537,597
                                                                         --------------------   --------------------

                Gross Profit                                              $          369,781     $          126,297
                                                                         ====================   ====================
</TABLE>

     Cost of services for the three  months  ended June 30, 2006 was  $1,194,382
     compared to cost of services of $537,597  for the three  months  ended June
     30,  2005 and is related  directly  to the  delivery of services to its PEO
     clients.  This increase was directly  related to the  acquisition of United
     Personal  Services and World Wide  Personnel  Services of Maine,  Inc which
     amounted to $939,764 for the three months ended June 30, 2006.

     General &  administrative  expenses,  including  salaries  and  wages,  was
     $657,080 for the three months ended June 30, 2006,  compared to $686,887 in
     the  corresponding  period of 2005.  The  decrease  was  attributed  to the
     restructuring  that occurred on May 15, 2005 which  included a reduction in
     internal  staff.  The decrease was mitigated by an increase in expenses due
     to the  acquisition of United  Personnel  Services and World Wide Personnel
     Services of Maine which totaled  $242,039 for the quarter  ending June 30 ,
     2006.

                                        5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:

     Cash and  cash  equivalents  at June 30,  2006  was  $251,243  compared  to
     $251,595 at December 31, 2005. The Company's use of cash from operation was
     $933,358 and $1,083,303 for the six months ended June 30, 2006 and June 30,
     2005,  respectively.  The net loss of $1,523,402  was offset by $637,393 of
     non-cash items the increase in accrued  expenses,  payroll  liabilities and
     deferred  compensation  off set by the  increase  in  accounts  receivable,
     insurance deposits and prepaid expenses.

     Net cash used in  investing  activities  for the six months  ended June 30,
     2006 was  $56,705  compared  to the net  cash in  investing  activities  of
     $689,532  for the six  months  ended June 30,  2005.  During the six months
     ended  June  30,  2006,  the  cash in  investment  activities  was from the
     purchase of fixed assets and the acquisition of United  Personnel  Services
     of Maine and Worldwide of Maine.

     Net cash provided by financing  activities in the six months ended June 30,
     2006 was $876,301  compared to $827,105 in the  corresponding  period ended
     June 30, 2005. The cash provided  during both periods is primarily  related
     to the Company's  execution and  utilization of its  equity-based  lines of
     credit.

     In August  2003,  the Company  entered  into a  $10,000,000  equity line of
     credit from  Compass  Capital  Inc.,  Kentan  Ltd,  and Reef  Holding  Ltd.
     Borrowing  from this equity line allows the repayment by issuing  shares of
     the  Company's  stock at a discount  rate of up to 50% off the  closing bid
     stock  price.  The  equity  line is  being  used to fund  acquisitions  and
     shortfalls in working capital. These shares were issued pursuant to Section
     3(a)(10) of the  Securities  Act of 1933, as amended,  after a hearing with
     notice to, and an opportunity to be heard from,  interested  parties, as to
     the  fairness  of  each  transaction,  by a  state  court  in  Florida  who
     specifically  determined,  prior to declaring  that the  transactions  were
     exempt  under  Section  3(a)(10),  that the  transactions  were fair to the
     interested  parties.  The Company received  $750,000 of additional  funding
     from  January 1, 2006 until June 30,  2006  through  the  issuance of these
     convertible  notes. The balance  remaining on this equity line of credit at
     June 30, 2006 was $449,102.

     In March 2003, the Company entered into a $10,000,000 equity line of credit
     from  Equities  First,  LLC.  Borrowing  from this  equity  line allows the
     repayment by issuing shares of the Company's stock at a discount rate of up
     to 50% off the  closing bid stock  price.  The equity line is being used to
     fund  acquisitions  and  shortfalls in working  capital.  These shares were
     issued  pursuant to Section  3(a)(10)  of the  Securities  Act of 1933,  as
     amended,  after a hearing  with notice to, and an  opportunity  to be heard
     from,  interested  parties,  as to the fairness of each  transaction,  by a
     state court in Illinois  who  specifically  determined,  prior to declaring
     that  the  transactions  were  exempt  under  Section  3(a)(10),  that  the
     transactions  were fair to the  interested  parties.  Equities  First,  LLC
     interest and rights were  transferred  to Bull Market  Trading,  LLC,  WLSL
     Investments  Inc.  and Carl  Horsely.  The  Company  received  $152,100  of
     additional  funding  from  January 1, 2006 until June 30, 2006  through the
     issuance of these  convertible  notes. The balance remaining on this equity
     lines of credit at June 30, 2006 was $9,602,325

     From January 1, 2006 until June 30, 2006, in connection with the funding of
     working capital shortfalls, the Company converted $1,249,897 of convertible
     debentures and issued a total of 4,924,339  shares of its common stock with
     a par value of $.001.

     In March 2006,  the Company  completed the purchase of all the  outstanding
     shares of stock of World Wide Personnel of Maine,  Inc and United Personnel
     Services,  Inc. The  effective  date of the purchases was April 1, 2006 and
     January 1, 2006  respectively.  The Company  will issue  500,000  shares of
     Series "C" Convertible  Preferred shares to the sole stockholder for United
     Personnel  Services,  Inc. and World Wide Personnel Services of Maine, Inc.
     The value of these shares is $500,000. At the present time the Company does
     not enough  shares  available  to convert the Series "C"  preferred  stock.
     $100,000 has been attributed to the purchase of United Personnel  Services,
     Inc and the remaining  $400,000 is  attributed  to World Wide  Personnel of
     Maine, Inc. Both companies are licensed Professional Employer Organizations
     operating in the state of Maine.  United  Personnel  was formed in 1999 and
     World  Wide  Personnel  of  Maine,  Inc was  formed in 1997.  Total  Assets
     acquired in the  Acquisition  of United  Personnel  Services and World Wide
     Personnel of Maine were $223,106 which included $63,174 in cash and $10,000
     in  fixed  assets  which  consisted  of  Office/Computer  Equipment.  Total
     Liabilities  assumed in the Acquisition were $205,498.  Goodwill was valued
     at $482,392 of which  $197,720 was impaired.  The fair value was determined
     using discounted cash flows.

                                        6
<PAGE>
     Both companies  offer full service human resource  management  services for
     small and mid-sized  businesses.  Combined these acquisitions  increase the
     Company's work site employees by  approximately  600. The purchase of these
     companies  extends  the  operating   footprint  of  the  Company  from  the
     mid-Atlantic region to the northeast region of the country.

     The  Company's  cash  requirements  for  funding  its   administrative  and
     operating  needs continue to greatly  exceed its cash flows  generated from
     operations.  Such  shortfalls  and  other  capital  needs  continue  to  be
     satisfied  through  equity  financing and  convertible  notes payable until
     additional funds can be generated through acquisitions and organic business
     growth.  The liabilities of the Company consist of  over-extended  accounts
     payable, payroll taxes, and interest expense.

     As part of its goal to bring the Company to profitability  and less reliant
     on equity  financing for ongoing  operations,  the company has developed an
     aggressive  marketing  strategy as well as an investment  to  significantly
     upgrade  its HRIS  (Human  Resource  Information  System)  capabilities  to
     service its current and prospective clients.  This plan includes hiring and
     training the sales team as well as marketing the company's services through
     networks of national  associations and chains. The company has successfully
     negotiated  joint marketing  programs to market the company's  products and
     services.  During the six months ending June 2006 the Company has increased
     its sales force  resulting in an increased  client base. New sales begin to
     matriculate in the second quarter at which time sales  commission  expenses
     will increase.

     In addition to an aggressive organic growth strategy, the Company continues
     to evaluate potential acquisitions.  The Company is seeking to increase its
     market  share in areas  contiguous  to its  existing  operations.  With the
     implementation   of  the  HRIS  system,   the  Company  has  increased  its
     operational  capability.  Increased  market share through  acquisition will
     more fully utilize the HRIS system.

     The Company will be able to add additional  clients without  increasing its
     operational staff. The reorganization  reduces the Company's heavy industry
     and "blue  collar"  client base  allowing it to expand at a greater pace in
     other  economic  sectors  which has been a stated goal of the Company.  The
     targeted  clients to which the Company is  marketing  its  services  have a
     greater  capability to the more automated  process integral to the new HRIS
     system. The  reorganization  also reduced the Company's reliance on outside
     equity funding.

     The Company relies on equity  financing to fund its ongoing  operations and
     investing  activities.  The  Company  expects  to  continue  its  investing
     activities,  including  expenditures for acquisitions,  sales and marketing
     initiatives,  HRIS (Human Resource  Information System), and administrative
     support.  The loss of its current equity  financing would seriously  hinder
     the  Company's  ability to execute  its  business  strategy  and impair its
     ability to continue as a going concern.

OFF-BALANCE SHEET ARRANGEMENTS

     The  Company  does not have any off  balance  sheet  arrangements  that are
     reasonably  likely to have a  current  or  future  effect on our  financial
     condition,  revenues,  and  results  of  operations,  liquidity  or capital
     expenditures.

CRITICAL ACCOUNTING POLICIES

     Basis of  presentation-The  accompanying  financial  statements  have  been
     prepared on a going concern basis,  which  contemplates  the realization of
     assets  and  the  satisfaction  of  liabilities  in the  normal  course  of
     business.  The Company has  generated  significant  losses and is unable to
     predict  profitability  for the future.  These  factors  indicate  that the
     Company's continuation, as a going concern is dependent upon its ability to
     obtain adequate  financing.  The Company plans to address the going concern
     by obtaining equity financing and to grow the Company with profitable sales
     both organically and through acquisitions. Management believes successfully
     executing these tasks will lead to the removal of the going concern comment
     from our audited financials.

                                        7
<PAGE>
     Use of Estimates- Our consolidated  financial statements have been prepared
     in accordance with generally accepted  accounting  principles in the United
     States (US GAAP). The preparation of these financial statements requires us
     to make  estimates  and judgments  that affect the reported  amounts in the
     financial statements and accompanying notes. These estimates form the basis
     for judgments we make about the carrying  values of assets and  liabilities
     that are not readily apparent from other sources. We base our estimates and
     judgments on historical experience and on various other assumptions that we
     believe are reasonable under the circumstances.  However, future events are
     subject to change and the best  estimates and judgments  routinely  require
     adjustment.  US GAAP requires us to make estimates and judgments in several
     areas,  including  those  related  to  impairment  of  goodwill  and equity
     investments,   revenue   recognition,   recoverability   of  inventory  and
     receivables,  the useful  lives of long lived  assets such as property  and
     equipment,  the future  realization of deferred income tax benefits and the
     recording  of various  accruals.  The ultimate  outcome and actual  results
     could differ from the estimates and assumptions used.

     Revenue  Recognition-  We  account  for our  revenues  in  accordance  with
     Emerging  Issues Task Force ("EITF") 99-19,  Reporting  Revenues Gross as a
     Principal  Versus  Net as an  Agent.  Our  revenues  are  derived  from our
     billings,  which are based on: the payroll cost of our worksite  employees;
     and a markup computed as a percentage of the payroll cost.

     In  determining  the pricing of the markup  component of the  billings,  we
     consider our estimates of the costs directly  associated  with our worksite
     employees, including payroll taxes and workers' compensation costs, plus an
     acceptable gross profit margin.  We invoice the billings  concurrently with
     each periodic payroll of our worksite  employees.  Revenues,  which exclude
     the payroll cost  component of billings,  are  recognized  ratably over the
     payroll  period as worksite  employees  perform their service at the client
     worksite. We include revenues that have been recognized but not invoiced in
     unbilled accounts receivable on our Consolidated Balance Sheets.

     Our revenues are primarily dependent on the number of clients enrolled, the
     resulting number of worksite employees paid each period. Because our markup
     is computed as a percentage of payroll cost,  revenues are also affected by
     the payroll cost of worksite  employees,  which can fluctuate  based on the
     composition  of the worksite  employee base,  inflationary  effects on wage
     levels and differences in the local economies of our markets.

     The primary direct costs associated with our revenue generating  activities
     are:  employment-related  taxes ("payroll  taxes");  workers'  compensation
     claim costs.

     Payroll  taxes  consist of the  employer's  portion of Social  Security and
     Medicare   taxes  under  FICA,   federal   unemployment   taxes  and  state
     unemployment  taxes.  Payroll taxes are  generally  paid as a percentage of
     payroll  cost.  The federal  tax rates are defined by federal  regulations.
     State  unemployment  tax rates are subject to claim histories and vary from
     state to state.

     Principles of consolidation- The consolidated  financial statements include
     the  accounts  of the  Company  and  all of its  subsidiaries  in  which  a
     controlling interest is maintained.  All significant inter-company accounts
     and transactions have been eliminated in consolidation.

FORWARD LOOKING STATEMENTS

     The Company is making this  statement in order to satisfy the "safe harbor"
     provisions  contained in the Private  Securities  Litigation  Reform Act of
     1995.

     This  Form  10-QSB  includes  forward-looking  statements  relating  to the
     business of the Company.  Forward-looking statements contained herein or in
     other  statements  made by the  Company  are  made  based  on  management's
     expectations and beliefs concerning future events impacting the Company and
     are  subject  to  uncertainties  and  factors  relating  to  the  Company's
     operations and business environment,  all of which are difficult to predict
     and many of which are beyond the control of the  Company,  that could cause
     actual  results of the  Company  to differ  materially  from those  matters
     expressed in or implied by forward-looking

                                        8
<PAGE>
     statements.  The Company believes that the following factors, among others,
     could affect its future performance and cause actual results of the Company
     to differ materially from those expressed in or implied by  forward-looking
     statements  made  by or on  behalf  of  the  Company:  (a)  the  effect  of
     technological changes; (b) increases in or unexpected losses; (c) increased
     competition;  (d)  fluctuations  in the costs to operate the business;  (e)
     uninsurable risks; and (f) general economic conditions.

Item 3.  CONTROLS AND PROCEDURES.

     As of June 30, 2006, an evaluation was performed  under the supervision and
     with the participation of the Company's management, including the Principal
     Executive Officer,  of the effectiveness of the design and operation of the
     Company's disclosure controls and procedures. Based on that evaluation, the
     Company's  management,  including the Principal  Executive  Officer and the
     Principal  Accounting  Officer,  concluded  that the  Company's  disclosure
     controls and procedures were effective as of June 30, 2006. There have been
     no  significant  changes in the  Company's  internal  controls  or in other
     factors that could  significantly  affect internal  controls  subsequent to
     June 30, 2006.

PART II. OTHER INFORMATION

Item 3.  Defaults upon Senior Securities

     The  Company  is in  default in the  payment  of the  principle  amount and
     accrued interest on certain convertible  debentures issued in March 2001 in
     the aggregate  principle amount of $250,000.  The amounts in default exceed
     5% of the  Company's  total  assets  as of the  date  of this  report.  The
     $250,000 is included in the $375,000 short term notes payable.


Item 6.  Exhibits

Exhibit No.       Description                                              Page
3(i)              Articles of Incorporation                                 *
3(ii)             Amendments to Articles of Incorporation                   *
4.1               Designation of Series "B" Convertible Preferred Stock     *
4.2               Designation of Series "C" Convertible Preferred
                  Stock                                                     *
31.1              Rule 13a-14(a)/15d-14(a) Certification
32.1              Section 1350 Certification

  *      Incorporation by reference from previous reports and filings.


Item 7.  Signatures

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  registrant  has duly caused this report to be signed in its behalf
by the undersigned thereunto duly authorized.

Pacel Corp.


BY: /s/ GARY MUSSELMAN
   ---------------------------------------------------
   Gary Musselman, President, Chief Executive Officer,
   and Chief Financial Officer

DATED: August 15, 2006

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