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, 2002

                                       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)



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


8870 RIXLEW LANE, SUITE 201
MANASSAS, VIRGINIA                                      20109-3795
----------------------------------------        --------------------------------
(Address of principal executive offices)                  (ZIP Code)


Registrant's telephone number, including area code: (703) 257-4759

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 [ ]

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 June 30, 2002,  there were 122,227,409  shares of the Registrant's  common
stock outstanding.




<PAGE>



                          PACEL CORP. AND SUBSIDIARIES

                    PART I. FINANCIAL INFORMATION (unaudited)
                                     Part I

                          PACEL CORP. AND SUBSIDIARIES




     PART I. FINANCIAL INFORMATION (unaudited)

Item 1.  Index to Consolidated Condensed Financial Statements                F-1


         Condensed Consolidated Balance Sheets                               F-2


         Consolidated Condensed Statements of Income of Operations           F-3


         Consolidated Statements of Cash Flows                               F-4


         Notes to Consolidated Condensed Financial Statements                F-5

Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations                                                 8


   PART II. OTHER INFORMATION                                                 11


             SIGNATURES                                                       12



<PAGE>



<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                                  Balance Sheet
                                   (Unaudited)

      ASSETS
                                                                              June 30,           December 31,
                                                                                2002                 2001
                                                                             Unaudited              Audited
                                                                         -------------------   -----------------
<S>                                                                      <C>                   <C>
Current assets:
   Cash and cash equivalents                                             $             5,113   $         65,761
Accounts receivable, net of allowance for doubtful accounts of
 $1,311 and $1,311 respectively                                                       91,672             324,134
   Inventory                                                                          24,883              61,306
   Other receivables                                                                 108,479              36,684
                 4                                                       -------------------   -----------------
      Total current assets                                                           230,147             487,885
Property and equipment, net of accumulated depreciation
of  $81,423 and $73,946 respectively                                                  73,626              81,123

Non-current assets:
     Note receivable                                                                  71,000              71,000
     Goodwill                                                                              -             407,049
     Security deposits                                                                25,359              10,122
                                                                         -------------------   -----------------
        Total non-current assets                                                      96,359             488,171
      Total assets                                                       $           400,132   $       1,057,179

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                                      $         1,770,270   $       1,423,979
   Accrued expense                                                                   244,303             175,511
   Loans payable officers-Stockholders                                               780,824             143,853
   Notes payable                                                                     863,750           1,182,343
   Notes payable bank                                                                 50,000              50,000
   Net liabilities of discontinued operations                                              -             236,731
                                                                         -------------------   -----------------
         Total current liabilities                                                 3,709,147           3,212,417
                                                                         -------------------   -----------------
Long Term liabilities:
   Convertible debentures                                                            808,629             700,636
                                                                         -------------------   -----------------
         Total long term liabilities                                                 808,629             700,636
                                                                         -------------------   -----------------
      Total liabilities                                                            4,517,776           3,913,053
                                                                         -------------------   -----------------
Minority interest Commitments:

Stockholders' equity (deficit)
Preferred stock, no par value, no liquidation value, 5,000,000 shares
authorized, issued 1,000,000 shares 1997 class A convertible
preferred stock                                                                       11,320              11,320
Common stock - no par value, 650,000,000 and 650,000,000 shares
authorized in  2002 and 2001, respectively.  122,227,409 and
2,470,644 shares outstanding in 2002 and 2001, respectively                        8,142,972           6,729,122
   Cumulative currency translation adjustment                                        (18,720)            (11,000)
       Deficit                                                                   (12,253,216)         (9,585,316)
   Total stockholders' equity  (deficit)                                          (4,117,644)         (2,855,874)
                                                                         -------------------   -----------------
   Total liabilities and stockholders' equity                            $           400,132   $       1,057,179
                                                                         ===================   =================
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                       F-2


<PAGE>



<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
          Consolidated Statements of Stockholders' Equity (Deficiency)


                                                                                           Retained     Currency       Total
                                             Preferred Stock          Common Stock         Earnings    Translation  Stockholders
                                           Shares        Amount     Shares      Amount     (Deficit)    Adjustment    Equity
                                           --------------------- ----------------------- ------------- ------------ -------------
<S>                                        <C>        <C>        <C>           <C>        <C>           <C>          <C>
Balance, December 31, 1999                 1,000,000  $  11,320   13,990,313   2,394,129   (2,667,485)    (4,807)        (266,843)
                                           --------------------- ----------------------- ------------- ------------ -------------
Issuance of common stock and warrants
     net of expenses                                              21,506,507   2,527,721                                2,527,721
Issuance of restricted common stock for
     Professional Services                                         1,450,000     116,629                                  116,629
Issuance of common stock of professional
     services                                                      2,366,666     110,435                                  110,435
Conversion of Employee common stock
     options                                                          35,000       7,000                                    7,000
Effect of currency translation                                                                            (6,026)          (6,026)
Net loss                                                                                   (3,337,285)                 (3,337,285)
Balance, December 31, 2000                 1,000,000  $  11,320   39,348,486 $ 5,155,914 $ (6,004,770) $ (10,833)   $    (848,369)
                                           --------------------- ----------------------- ------------- ------------ -------------

Issuance of common stock, options and
    warrants net of expenses                                     134,328,180     584,950                                  584,950
Issuance of restricted common stock for
     professional services                                        13,682,125     368,738                                  368,738
Issuance of restricted common stock Held
     In Escrow                                                     5,555,556                                                    -
Issuance of common stock for
     professional services                                        54,150,000     619,520                                  619,520
Effect of currency translation                                                                              (167)            (167)
Net loss                                                                                   (3,580,546)                 (3,580,546)
Balance, December 31, 2001                 1,000,000  $  11,320    2,470,643 $ 6,729,122 $ (9,585,316) $ (11,000)   $  (2,855,874)
                                           --------------------- ----------------------- ------------- ------------ -------------

Issuance of common stock, options and
     warrants net of expenses                                    120,719,266     677,850                                  677,850
Issuance of restricted common stock for
     professional services                                           600,000     736,000                                  736,000
Issuance of restricted common stock
     Held In Escrow                                                                                                             -
Issuance of common stock for
     professional services                                                                                                      -
Effect of currency translation                                                                            (7,720)          (7,720)
Net loss                                                                                   (2,667,900)                 (2,667,900)
Balance, December 31, 2002                 1,000,000  $  11,320  123,789,909 $ 8,142,972 $(12,253,216) $ (18,720)   $  (4,117,644)
                                           --------------------- ----------------------- ------------- ------------ -------------
</TABLE>


     The accompanying notes are an integral part of the financial statements

                                       F-3


<PAGE>



<TABLE>
<CAPTION>
                          PACEL CORP. AND SUBSIDIARIES
                            Statements of Cash Flows
                                   (Unaudited)

                                                                       2002             2001
                                                                --------------  ----------------
<S>                                                             <C>             <C>
Cash flows from operating activities:
   Net (loss)                                                   $   (2,667,900) $     (1,256,574)
Adjustments to reconcile net (loss) to net cash (used in)
provided by operating activities:
   Cumulative effect of accounting change                              407,049                -
   Depreciation                                                          7,477            7,810
   Provision for Bad Debts                                                   0              (721)
   Other non cash items                                              1,153,652           368,483
   Gain on sale of EB-Store                                           (177,817)
Increase (Decrease) in Cash from changes in:
    Accounts receivable                                                232,462          (107,146)
    Other receivables                                                  (71,795)            5,965
    Inventory                                                           36,423               762
    Other assets                                                             0            (1,798)
    Security deposits                                                  (15,237)                0

    Prepaid expenses                                                         0            (1,798)
    Accounts payable                                                   287,357           253,386
    Accrued expense                                                     68,792            (1,506)
    Loans Payable Officers-Stockholders                                636,971            80,228
 Net cash (used in) operating activities                              (102,566)         (652,909)
                                                                --------------  ----------------

Cash flows from investing activities:
    Purchase of property and equipment                                                    (3,882)
    Notes Receivable                                                         0                 0
       Net cash used in investing activities                                 -            (3,882)
                                                                --------------  ----------------

Cash flows from financing activities:
   Repayment of loans payable                                         (125,362)                -
   Notes payable convertible debenture                                  25,000           518,301
   Proceeds from sale of common stock                                  150,000           101,490
   Net cash provided by financing activities                            49,638           619,791
                                                                --------------  ----------------
Effect of exchange rates on cash                                        (7,720)              912
                                                                --------------  ----------------

Net increase (Decrease) in cash and cash equivalents
                                                                       (60,648)          (36,088)

Cash and cash equivalents at beginning of year                          65,761            36,356
                                                                --------------  ----------------

Cash and cash equivalents at end of period                      $        5,113  $            268
                                                                ==============  ================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
     Cash paid for interest                                              5,467             2,380
                                                                ==============  ================
</TABLE>

     The accompanying notes are an integral part of the financial statements

                                       F-4


<PAGE>



                          PACEL CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                    UNAUDITED
                                  JUNE 30, 2002





1.   Basis of Presentation

The  unaudited  financial  statements  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. 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 December
31, 2001  consolidated  financial  statements  and related notes included in the
Company's year ended certified financial  statements.  The results of operations
for the periods  ended June 30 are not  necessarily  indicative of the operating
results for the year. The Company  presumes that users of the interim  financial
information herein have read or have access to the audited financial  statements
for the  preceding  fiscal year 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
for the full year.


2.   Accounting for Business Combinations

In July 2001,  the FASB issued  Statements  of  Financial  Accounting  Standards
("Statement") No. 141, "Business  Combinations" and No. 142, "Goodwill and Other
Intangible  Assets"  ("FAS 142").  These  standards  change the  accounting  for
business combinations by, among other things, prohibiting the prospective use of
pooling-of-interests  accounting  and  requiring  companies  to stop  amortizing
goodwill and certain intangible assets with an indefinite useful life.  Instead,
goodwill and intangible  assets deemed to have an indefinite useful life will be
subject to an annual review for  impairment.  The new standards  generally  were
effective  for  Pacel in the first  quarter  of 2002 and for  purchase  business
combinations  consummated  after June 30, 2001.  Upon adoption of FAS 142 in the


                                      F-5


<PAGE>




first quarter of 2002, Pacel recorded a one-time,  noncash charge of $407,049 to
reduce the carrying  value of its  goodwill.  Such charge is  nonoperational  in
nature and is reflected as a cumulative  effect of an  accounting  change in the
accompanying consolidated statement of operations.

3.   Discontinued Operations

On May 31, 2002, the Company completed an agreement to sell E-BStor an 80% owned
subsidiary to F. Kay Calkins a director. The Company recorded a gain on the sale
of $177,817.  Ms. Calkins assumed all of the assets and liabilities on the books
as of May 31, 2002. There is an  inter-company  receivable of $1,568,815 we have
taken a 100% reserve  against the  receivable  due to our inability to determine
when they will have cash flow to start repayment of this loan. The  Consolidated
Financial  Statements  have been  restated,  where  applicable,  to reflect  the
E-BStor discontinued operations. .

4.   Subsequent events

a. In April 2002, David Calkins president,  director and F. Kay Calkins director
of Pacel were  granted a noncash  option to purchase  100,000,000  shares of the
company's  common  stock in exchange  for the a loan made to the company in 1999
amounting to $124,000 and securing and loaning to the Company,  a personal  line
of credit of up to $3,000,000 using the stock as collateral. Our ability to draw
on this line is based on the volume of the Common Stock  multiplied  by the VWAP
(volume weighted average price) for the thirty days preceding funding which must
be a minimum of $75,000. The maximum amount of collateral at any closing may not
exceed 4.9% of the issued and outstanding  shares of the Company.  Loan to value
is 35%. The interest rate is prime+2%  payable  quarterly in cash plus financing
expense of 9% of the draws.  The Company will pay these expenses  directly.  The
terms and conditions set fourth in the agreement we may not be able to meet.

b. On April 5, 2002 the Company  affected a  one-for-one  hundred  reverse split
restating the number of common shares as of March 31, 2002 from  648,462,600  to
6,484,626 and December 31, 2001 from 247,064,400 to 2,470,644. All references to
average  number of shares  outstanding  and prices per share have been  restated
retroactively to reflect the split.


                                      F-6




<PAGE>



FORWARD-LOOKING STATEMENTS

When used in this document and in our filings with the  Securities  and Exchange
Commission, in our press releases or other public or shareholder communications,
and in oral  statements  made  with  the  approval  of an  authorized  executive
officer,  the words or phrases  "will likely  result,"  "are expected to," "will
continue," "is anticipated,"  "estimate,"  "project" or similar  expressions are
intended  to  identify  "forward-looking  statements"  within the meaning of the
Private  Securities  Litigation Reform Act of 1995. These statements are subject
to certain  risks and  uncertainties,  which could  cause our actual  results to
differ materially from our historical results and those we presently  anticipate
or  project.  You  should  not  place  undue  reliance  on  any  forward-looking
statements,  which speak only as of the date made.  Various factors could affect
our financial  performance and could cause our actual results for future periods
to differ  materially from any opinions or statements we express with respect to
future  periods in any current  statement.  These factors  include,  but are not
limited to, the  following:  increases in our operating  expenses  outpacing our
revenues;  our  inability  to expand our sales and  distribution  channels;  the
failure of  strategic  relationships  to  implement  and  promote  our  software
products;  the failure of third parties to develop software components necessary
for the  integration  of  applications  using our  software;  and the use of our
intellectual property by others.

We do not  undertake--and we specifically  decline any  obligation--to  publicly
release  the result of any  revisions  which may be made to any  forward-looking
statements to reflect events or circumstances  after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.

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

GENERAL BUSINESS

Management's  discussion  and analysis of results of  operations  and  financial
condition,  include  a  discussion  of  liquidity  and  capital  resources.  The
following discussion (presented in hundreds, except per share amounts) should be
read in  conjunction  with  the  consolidated  financial  statements  and  notes
thereto.


                                    Overview

PACEL's  mission is to provide  consumers  and  businesses  with a full suite of
products and services that provide secure connectivity to and from the Internet,
including  e-commerce  transactions and personnel and company data security.  To
that end PACEL. and its subsidiaries  have been developing  products and methods
that meet that need for both families and  companies.  The  ChildWatch  software
suite of  programs  puts the  controls  for  family  computer  usage,  including
internet  filtering,  access controls and community  support for finding missing

                                       8


<PAGE>



and  abducted  children in the hands of the parents and is readily  available at
Zany Brany and  Electronic  Boutique  stores  nationally.  "Data  Protector" our
latest  technology  advancement  (patent pending)  software product will provide
complete file and data security. This new software is designed to guard both the
Inner Door (full protection on your PC from existing and new viruses), i.e., the
Love Bug, and someone trying to penetrate your PC and by-pass your password, and
the Outer Door (full Intruder  protection from Internet data collection  devices
and  programs  or  hackers).  Our current  goal is to utilize  and extend  these
technologies in the production of derivative products to provide secure Internet
connectivity  and  enhanced  desktop  security  for  customers  in the  home and
business marketplaces.


                              RESULTS OF OPERATIONS

Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001


Revenues  increased  30% to $316,957 in 2002  compared to $243,694 in 2001.  The
increase in revenues is directly  attributed to sales  generated  from Advantage
Systems  hardware sales. The sales from FCL fell sharply in the six months ended
June 30, 2002 compared to 2001.  RFP's from Nato were not approved in the fourth
quarter of 2001 therefore  delaying sales for 2002. We have not received any new
RFP's from Nato. The Company is focusing it's efforts on expanding it's hardware
sales in the  United  States as well as through  existing  NATO  contracts.  The
Company  continues to believe that the Child Watch software,  Data Protector has
sales potential if we can obtain adequate financing for the marketing.

Cost of Goods Sold  increased  23% to $312,812  in 2002  compared to $240,815 in
2001. The increase is directly  attributed to the increase in sales. The sale of
hardware generates a small gross profit than our other services.

Research and Development  expenses consist  principally of salaries for software
developers,   outside   consulting,   related  facilities  costs,  and  expenses
associated with computer  equipment used in software  development.  Research and
development  expenses  increase .6% to $232,826 in 2002  compared to $219,285 in
2001.  The increase is attributed to normal  increases in salaries and benefits.
Our lack of funding has forced us to cut further  research  and  development  on
Data Protector as well as the development of new products and enhancements.  The
Company  believes  that  research  and  development  activities  are  crucial to
maintaining  a  competitive  edge in  markets  characterized  by rapid  rates of
technological  advancements.  Without  adequate  financing we may not be able to
stay on the cutting edge of technology.

Sales and marketing  expenses include salaries and benefits,  sales commissions,
travel expenses, and related facilities costs for our sales, marketing, customer
support, and distribution consultants. Sales and marketing expenses also include
the costs of programs aimed at increasing  revenue,  such as advertising,  trade

                                       9

<PAGE>



shows,  public  relations,  and other  market  development  programs.  Sales and
marketing  expenses  increased  427% to $206,244 in 2002  compared to $48,288 in
2001. The increase is attributed to focusing more efforts on developing  markets
for our products and the increase in salaries,  and commission  expenses related
to the sales in Advantage as well as the hiring of additional sales personal.

General  and  administrative   expenses  consist  principally  of  salaries  and
benefits,  travel  expenses,  and  related  facilities  costs  for  finance  and
administration,  human resources,  legal,  information  services,  and executive
personnel of PACEL.  General and  administrative  expenses also include  outside
legal and accounting fees, and expenses  associated with computer  equipment and
software used in the administration of the business.  General and administrative
expenses  increased 265% to $1,670,190 in 2002 compared to $629,594 in 2001. The
increase in administrative  expenses is directly related to the expenses related
to the acquisition of Advantage Systems.  In addition we issued $1,168,606 worth
of stock for services  instead of cash. The cost of the services would have been
signficiantly lower if we had paid cash for the services in lieu of stock.

Interest  expense and financing  cost Increased 305% to $70,308 in 2002 Compared
to $23,018 in 2001.  The  increase  in interest  expense is due the  convertible
notes not being  converted  into  common  stock  because of the low price of our
common  stock.  In addition we  continue to borrow  short term money  instead of
obtaining financing from equity.

Net (Loss) from continuing operations

Pacel's net loss before the cumulative  effect of an accounting change increased
to $2,218,400 in 2002,  compared to $1,006,216 in 2001.  Pacel's net loss before
the  cumulative  effect of an  accounting  change  increased  due to  additional
overhead  expenses,  rent,  utilities,  administrative  staff,  related  to  the
acquisition  of Advantage in September  2001.  In addition we had  increased our
sales force.  Interest  expense also increased.  On several  occasions we issued
stock in lieu of cash for various  services with deep discounted  rates compared
to the cash value of the services.

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001


Revenues  increased  223% to $138,369 in 2002  compared to $61,955 in 2001.  The
increase  in  revenues  is  directly  attributed  to the  increase in sales from
Advantage Systems.

Cost of Goods Sold  increased  209% to $127,502  in 2002  compared to $61,002 in
2001. The increase is directly attributed to the increase in sales.

Research and Development  expenses consist  principally of salaries for software
developers,   outside   consulting,   related  facilities  costs,  and  expenses
associated with computer  equipment used in software  development.  Research and
development  expenses  decrease 5.4% to $129,955 in 2002 compared to $137,297 in
2001. The decrease is attributed to the decrease in staff.

                                       10

<PAGE>



Sales and  marketing  expenses  increased  1859% to $147,365 in 2002 compared to
$7,927  in  2001.  The  increase  is  attributed  to  the  additional  salaries,
commission expenses related to the sales in Advantage.

General  and  administrative  expenses  increased  53% to  $557,446  to in  2002
compared  to  $364,308,  in 2001.  The  increase in  administrative  expenses is
directly related to the administrative salaries and overhead expenses associated
with the acquisition of Advantage Systems.  In addition we issued $342,606 worth
of stock for services  instead of cash. The cost of the services would have been
reduced if we had paid for the services in cash in lieu of stock.

Interest  expense and financing  cost Increased 290% to $35,013 in 2002 Compared
to $12,052 in 2001.  The  increase  in interest  expense is due the  convertible
notes not being  converted  into  common  stock  because of the low price of our
common stock and additional borrowing of short term money.

Six Months Ended  June 30, 2002   Compared to Six Months Ended June 30, 2001

Net cash used from  operating  activities for the six months ended June 30, 2002
and 2001 was $102,566 and  $652,909  respectively.  The use of cash in operating
activities  for the six months ended June 30, 2002 resulted  primarily  from the
short fall in sales off set by the reduction in of accounts  receivable  and the
increase in accounts payable.

Net cash used in investing activities for the six months ended June 30, 2002 and
2001 was $-0- and $3,882  respectively.  This  decrease was due to lack of funds
available for investing activities.

Net cash provided by financing activities for the six months ended June 30, 2002
and 2001 was $49,638  and  $619,791,  respectively.  The  decrease in  financing
activities  was  attributable  to repayment of notes payable of $125,362 and our
inability to file an Sb-2.

At June 30, 2002, we had $5,113 in cash and cash equivalents  compared to $1,867
at June 30, 2001. We will continue to have significant capital  requirements due
to limited sales  projections as well as expected  increases in expenditures for
sales and marketing.  In July 2002 we laid off all non essential  administrative
staff to reduce our cash requirements  until significant sales are projected and
we can secure adequate financing.

In April 2002, David Calkins president,  director and F. Kay Calkins director of
Pacel  were  granted a  noncash  option to  purchase  100,000,000  shares of the
company's  common  stock in exchange  for the a loan made to the company in 1999
amounting to $124,000 and securing and loaning to the Company,  a personal  line
of credit of up to $3,000,000 using the stock as collateral. Our ability to draw
on this line is based on the volume of the Common Stock  multiplied  by the VWAP

                                       11

<PAGE>



(volume weighted average price) for the thirty days preceding  funding must be a
minimum of $75,000.  The  maximum  amount of  collateral  at any closing may not
exceed 4.9% of the issued and outstanding  shares of the Company.  Loan to value
is 35%. The interest  rate is prime+2  payable in cash  quarterly  and financing
expense of 9% of the draws.  The Company will pay these expenses  directly.  The
terms and  conditions set fourth in the agreement we may not be able to meet. To
date we have  drawn  $440,000.  Due to the low  price  of the  stock  additional
proceeds  from this line of credit maybe  limited.  We intend to repay this loan
over the next six months.

In August 2002, we entered in an agreement to borrow  $720,000 over the next six
months at an interest rate of 15% to meet our projected  cash needs for the next
six months.

Our cash  requirements  for funding our  operations  have greatly  exceeded cash
flows from operations.  We continually  satisfy our capital needs through equity
financing which has become difficult due to the current investment  environment.
Our liabilities consist of over extended accounts payable,  payroll taxes, loans
from officers and officer's compensation.

We continually look for strategic  relationships  that will enhance our products
and services.  Due to the present economic conditions in technology and our lack
of available cash flow it is becoming harder to develop these relationships.  If
we do not develop these  relationships and find additional  sources of financing
it will hinder our ability to continue as a going concern.

We expect to continue  our  investing  activities,  including  expenditures  for
computer  systems for research and  development,  sales and  marketing,  product
support, and administrative staff, as funds become available.

On  August  1,  2002 , we formed a wholly  owned  subsidiary,  Entremetrix.  The
company has started a human  resource  support  company,  out of our  California
offices.  The  company  has been  granted  various  contracts.  We believe  that
development of this business will provide us with a direct marketing channel for
our IT consulting, System Security, hardware and Web based technologies.

In May  2002,  we  signed a letter  of  intent  for the  acquisition  of a human
resource  support  company,  for $2,500,000.  We are in the process of trying to
raise the funds to acquire this  company.  We cannot  guarantee  that we will be
able to raise the funds with adaquite  terms.  We believe that this  acquisition
will expand Entremetrix business.

In May 31, 2002, we sold our 80% ownership in EB-Store to F Kay Calkins.  F. Kay
Calkins  assumed all of the assets and all of the  liabilities  of record on May
31, 2002.  There is an inter-company  receivable of $1,568,815.  We have taken a
100% percent  reserve  against the  receivable due to our inability to determine
when EB-Store will be able to start repayment if at all. The Company  recorded a
gain on the sale of $177,817.  or $0.0064 per  share-diluted  and reflected this
business as a discontinued operation in June 2002.

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<PAGE>



                                     Part II

Item 1. Legal Proceedings.

The Company knows of no legal proceedings to which it is a party or to which any
of its property is the subject which are pending,  threatened or contemplated or
any  unsatisfied  judgments  against  the  Company.  However,  the  Company  has
responded to subpoenas addressed to the Company from the Securities and Exchange
Commission  and  the  United  States  Attorney's  Office  requesting   documents
involving  transactions  between the Company and Suburban  Capital  Corporation,
North Coast Investments, Inc., Frank Custable and certain other individuals. The
Company  has been  advised  that it has not been  identified  as a target of the
investigation by the U.S. Attorney's Office.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults in Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information

During the quarter,  the following  directors  resigned due to personal reasons:
Keith P. Hicks and Corey M. LaCross.  Neither  furnished the  Registrant  with a
letter requesting that any matter be disclosed.

                                       13

<PAGE>


                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                               Pacel, Corporation
                                  (Registrant)





Date:    August 19, 2002

                                /s/ David F. Calkins
                                -----------------------------------
                                David F. Calkins, CEO & Chairman



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